“Medicaid utilizes a five-year lookback to determine if you gave assets away within five years of your application for benefits. Transferring the home could make you ineligible for a period of time.”
It’s not uncommon for a senior who’s a widow or widower to want to help his or her children with the estate, by re-deeding their mortgage-free home to include a child or children. However, there’s a specific way to do this. It is important to be aware of the effect of this action on government benefit programs, like Medicaid.
nj.com advises in its recent article, “The risks of changing your home's deed,” that to avoid the probate process, a person could change the deed to the home to add an adult child as Joint Tenant with Right of Survivorship. In that way, the home will avoid probate, when the senior passes away.
There can be some potential negative consequences.
If the home has unrealized capital gains when he passes away, only his half of the value of the home would be eligible for a step-up in basis. If a senior goes ahead and sells the home while he’s still alive, he can exclude up to $250,000 of capital gains from tax, if it was his primary residence in two of the five years directly preceding the year it was sold.
However, if the daughter lives out of state, adding her to the deed will mean that her half won't be eligible for the exclusion because her primary residence is in another state.
In addition, if the daughter has creditors to whom she owes money, those creditors could attach a lien to her half of the senior’s home.
One other thought is whether the senior owns other assets or has long-term care insurance or other resources to pay for long-term care, should it become necessary.
If the senior in our scenario transfers half of his home to the daughter, it could be an issue if he needs long-term care and needs to qualify for Medicaid. Medicaid has a five-year lookback to determine if you gave assets away within five years of your application for benefits. Transferring the home could make the widow here ineligible for a time.
Speak to an experienced estate planning attorney at Family Security Law Group about your specific circumstances to be certain you understand all of the consequences of taking such action. Contact us today at (805) 496-4681.
Reference: nj.com (January 29, 2018) “The risks of changing your home's deed”