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 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 your care. If you want to protect your home, you may be tempted to give it to your children. Here are three reasons not to:
1. 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, the state will impose a penalty period during which Medicaid will not pay for your care even though you are otherwise eligible to receive benefits. Depending on the house’s value, the period of Medicaid ineligibility could stretch on for years.
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 could be vulnerable to their creditors.
3. 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 make a gift of property to a child during your lifetime, the tax basis for the property is the same price that you purchased the property for. If your child sells the house after you die, he or she could have to pay capital gains taxes on the difference between the tax basis and the selling price.
There are ways other than giving your home away to protect it from Medicaid estate recovery, including lady bird and transfer on death deeds. To find out the best option in your circumstances, contact the elder law attorneys at Johnson Hobbs Squires LLP.