By Donald L Kingett, Esq.
Many people fear losing their home if they have to enter a nursing home facility and qualify for Medicaid. This fear could be well founded, but transferring the house to children is really not the best way to protect it.
Generally speaking, you do not have to sell your home in order to qualify for Medicaid to pay for nursing home care. If Medicaid pays for the nursing home, the state will try to get from your estate (after you die) whatever it has paid for your care, which is called "estate recovery". In order to protect your home from this recovery, you might think about giving it to your children. However, this is not the best solution.
First of all, a transfer of your house to your kids, or even someone else, could make you ineligible for Medicaid for a certain time frame. A transfer made within five years of applying for Medicaid will be looked at by Social Services. A transfer for less than full fair market value within that time frame will cause a penalty during which you will not be eligible for Medicaid benefits. The penalty for Medicaid eligibility, depending on the value of the home, could stretch out for many years. In some circumstances you can transfer a home without penalty. These include as transfers to your spouse, to a child under age 21 who is blind or disabled, or to a trust for the sole benefit of a disabled individual under age 65. Transfers are also permitted to a brother or sister who is lived in the home during the year before the Medicaid applicant's institutionalization and who already owns part of the home. Also, a child of the applicant who lived in the house for at least two years and who provided care during that period which allowed the applicant to avoid a nursing home stay is permitted.
Keep in mind that transferring a house to your children eliminates your ownership interest in the- house. This means that you will not be able to control what is done with the house and the kids can do what they want. Also, if your kids are subject to a divorce or a lawsuit, the house could be vulnerable to their creditors or your son-in-law or daughter-in-law.
There are also adverse tax consequences to gifting the house to your children. While property that is inherited by your children will receive a "step up" in the tax basis when you pass away (meaning that the basis is the current value of the property), a gift to a child causes the tax basis to be the same purchase price you paid for the property. This means that if the kids sell the house after you die they will have to pay capital gains taxes on the difference between the selling price and the tax basis.
There are other ways to protect the house from Medicaid claims including using a specially designed trust. If you want to find out the best option for you, please give us a call and we'll be happy to schedule an appointment.
***Disclaimer: This article does not constitute legal, accounting or other professional advice. Only through a personal, confidential consultation with qualified legal counsel can anyone properly evaluate their own unique Tax or estate planning challenges and determine what, if any, appropriate legal strategies and tactics should be implemented to meet those challenges.”***