You may be afraid of losing your home if you have to enter a nursing home and apply for Medicaid. While this fear is well-founded, transferring the home outright to your children is usually not the best way to protect it.
Although you generally do not have to sell your home in order to qualify for Medicaid coverage of nursing home care, the state could file a claim against the house after you die. If you get help from Medicaid to pay for the nursing home, the state will attempt to recoup from your estate whatever benefits it paid for your care. This is called “estate recovery.” If you want to protect your home from this recovery, you may be tempted to give it to your children. Here are three reasons not to:
- Medicaid ineligibility. Transferring your house to your children (or someone else) may make you ineligible for Medicaid for a period of time. The state Medicaid agency looks at any transfers made within five years of the Medicaid application. If you made a transfer for less than market value within that time period, Medicaid will impose a penalty period during which you will not be eligible for benefits.
There are circumstances under which you can transfer a home without penalty and therefore, you should consult with an elder law attorney before making any transfers. You may freely transfer your home to the following individuals without incurring a transfer penalty:
- Your spouse;
- A minor child or a disabled child of any age;
- Into a trust for the sole benefit of a disabled individual under age 65 (even if the trust is for the benefit of the Medicaid applicant, under certain circumstances);
- 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; and
- 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.
- Loss of control. By transferring your home outright 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 will be vulnerable to their creditors.
- Adverse tax consequences. Inherited property receives a “step up” in basis when you die, which means the basis is the current value of the property. However, when you give property outright to a child, the tax basis for the property is the same price at which it was purchased. 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 other ways to protect a house from Medicaid estate recovery, including putting the home in a trust. If you or someone you know would like to find out the best option in your circumstances, please contact our firm. We would be happy to work with you.