Watch Out For Title Changes

Don’t give your house to your kids to qualify for Medicaid without understanding the rules!

With the cost of long-term care (LTC) skyrocketing, you may be concerned about your (or your elderly parents’) ability to pay for assisted living or a nursing home. Such care can be massively expensive, with the potential to overwhelm even the well-off.

Neither traditional health insurance nor Medicare will pay for LTC, so some people look to Medicaid to help cover this cost. To become eligible for Medicaid, however, you must first exhaust most of your savings.

Many people think that if they transfer their house to their adult children, they can avoid ‘losing’ the home to Medicaid.  This tactic is a big mistake on several levels. It can not only delay—or even disqualify—your Medicaid eligibility, it can also lead to many other problems.

Medicaid Changes

There is now a five-year “look-back” period for eligibility for Medicaid.  This means that there will be a review of any transfer of property, gift, title change or otherwise within the five years preceding your application. If there are any “uncompensated transfers”, it can result in a penalty period that will delay your eligibility.

For every $6,422 worth of uncompensated transfers made within this five-year window, your Medicaid benefits will be withheld for one month. Any transfers made prior to that five-year period will not be penalized.

If you transfer your house to your children and then need LTC within five years, it may significantly delay your qualification for Medicaid benefits—and possibly prevent you from ever qualifying. Rather than taking such a risk, consult with us to discuss safer and more efficient options to deal with your property.  We can also talk about ways to cover the rising cost of LTC such as long-term care insurance.

A potentially huge tax burden

Another drawback to transferring ownership of your home is the potential tax liability for your child. If you’ve owned your house for a long time, and its value has dramatically increased, your child will have to pay capital gains tax on the difference between your home’s value when you purchased it and your home’s selling price at the time it’s sold by your child. Depending on the home’s value, these taxes can be quite large.

However, if your property passes to your child at the time of your death, your child will receive what’s known as a “step-up in basis.” This allows your child to pay capital gains taxes based only on the difference between the value of the home at the time of inheritance and its sales price.

We can help you choose the most advantageous estate-planning strategy to minimize your beneficiaries’ tax liability and ensure they get the most out of their inheritance.

Debt, Divorce, Disability, and Death

There are many reasons why transferring ownership of your house to your child is a bad idea. If your child has significant debts, his or her creditors can potentially force your child to sell the home to pay those debts.

Divorce is another problematic issue. If your child goes through a divorce while the house is in his or her name, the home may be considered marital property. Depending on the outcome of the divorce, this may force your child to sell the home or pay his or her ex a share of its value.

The disability or death of your child can also lead to trouble. If your child becomes disabled, he might need to seek Medicaid or other government benefits.  Having the home in his name could compromise eligibility, just like it would your own. If your child dies before you but owns the house, the property would be considered part of your child’s estate and be passed on to your child’s heirs, creating a problem for you.

Poor-Man’s Estate Planning

Given these potential problems, transferring your home to your children as a means of “poor-man’s estate planning” is almost never a good idea. Instead, with us as your Personal Family Lawyer®, we can help you find better ways to qualify for Medicaid and other benefits to offset the hefty price tag of long-term care and also keep your family out of court and out of conflict in the event of your incapacity or when you die.

We offer an array of estate planning strategies to protect all of your assets, while also enabling you to better afford whatever long-term healthcare services you might require. Contact us today to learn more.

This article is a service of Susan Hunt, Personal Family Lawyer®. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Family Wealth Planning Session, ™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.