Should I Give My Home to Family to Protect it from Medicaid?
Many people fear losing their home if they have to enter a nursing home and apply for Medicaid. They believe that they can preserve their home by transferring it to their children prior to applying for Medicaid. Transferring a home to children, however, is generally not the best way to protect it.
1. Medicaid ineligibility.
Transferring your house to your children (or someone else) may make you ineligible for Medicaid for a significant period of time. The state Medicaid agency will examine any transfers made within the five years prior to the filing of a Medicaid application. If you made a transfer for less than market value within that time period, the state will impose a penalty period during which you will not be eligible for benefits. Depending on the house’s value, the period of Medicaid ineligibility could stretch on for years. Moreover, the penalty period would not start running until you actually apply for Medicaid.
Transfer a Home Without Medicaid Penalty:
There are circumstances under which you can transfer a home without incurring a penalty. A personal residence may be transferred to the following individuals without incurring a penalty:
- Your spouse
- A child who is under age 21 or who is blind or disabled
- Into a trust for the sole benefit of a disabled individual under age 65
- A sibling who has lived in the home during the year preceding the applicant's institutionalization and who already holds an equity interest in the home.
- A "caretaker child," who is defined as a child of the applicant who lived in the house for at least two years prior to the applicant's institutionalization and who during that period provided care that allowed the applicant to avoid a nursing home stay.
You should be aware that there are many regulations governing these exempt transfers and they should not be attempted without first consulting with an experienced elder law attorney.
2. Loss of control.
By transferring your house to your children, you will no longer own the house, which means you will not have control of it. Your children can do what they want with it. In addition, if your children are sued or get divorced, the house may be lost to their spouse or creditors.
3. Adverse tax consequences.
Property Inherited by your children when you die receives a "step up" in basis. This means the tax basis of the property is increased to its value at the date of your death. However, when you give property to a child during your lifetime, the “tax basis” for the property is the same as the price at which you originally paid for it. If your child sells the house after you die, he or she would have to pay capital gains taxes on the difference between the tax basis and the selling price.
There are better ways to protect a house from Medicaid, including putting the home in a special asset preservation trust. To find out the best option in your circumstances, give us a call at 440-930-2826 to schedule a free consultation. We enjoy putting to use our knowledge and expertise to provide you with the best advice on how to protect the ones you love.
