Illinois Estate Planning and Elder Law Blog
If you are moving to a nursing home and want to protect your home from Medicaid, you might think that transferring your home to your children is a good way to protect it. Although you don’t typically need to sell your home to qualify for Medicaid coverage of nursing home care, after you die, the state must attempt to recover from your estate whatever benefits it paid for your care if Medicaid had helped cover the cost of the nursing home (this is referred to as “estate recovery”). Transferring your house to your children in order to protect it from estate recovery is not ideal for a number of reasons.
First, transferring your home can make you ineligible for Medicaid for a certain amount of time. The state Medicaid agency looks for transfers made within five years of the Medicaid application and if any transfers were made for less than market value, the state imposes a penalty period in which you are not eligible for benefits.
However, you can typically avoid this penalty when transferring your home to the following:
• Your spouse
• A child who is under the age of 21 or who is blind or disabled
• 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
• A “caretaker child,” who is a child of the applicant who lived in the house for at least two years prior to the applicant’s institutionalization and who provided care that allowed the applicant to avoid a nursing home stay.
Another reason you may not want to transfer your home to your children is that you will no longer own or have control over it. Your children can do whatever they want with it, and it will be vulnerable to their creditors if your child is sued or divorced.
Finally, giving your home to children might have unfavorable tax consequences. While property that is inherited receives a “step up” in basis after you die (the basis is the current value of the property), if you give your property to your child, its tax basis is the same price that you purchased the property for. Your child would then have to pay capital gains taxes on the difference between the tax basis and the selling price if they sell the house after you die. The might only be avoided if your child lives in the house for at least two years before selling it, in which case the child can exclude up to $250,000 (or $500,000 for a couple) of capital gains from taxes.
There are other ways to protect your house from estate recovery, such as putting it in a trust. Your elder law attorney can help you explore the best option for you to avoid Medicaid estate recovery. Contact us at Wilson and Wilson Estate Planning and Elder Law, LLC, 708-482-7090 or wwilson@wilsonwilsonllc.com