At the “Professionals Caring for Aging Parents” panel last week, one of the many questions Rebecca Geyer fielded was this: Is it a good idea to transfer ownership of a parent’s home to an adult child in order to protect the asset in case of a future need for Medicaid? The definite answer? “No!” There are at least three reasons this is not a good idea, Geyer explained:
1. Once you gift your home to a child, it becomes an asset subject to that child’s creditors and potential lawsuits (if they were to experience financial difficulty or become involved in a contested divorce)..
2. Most seniors’ homes have greatly appreciated in value over the decades. If the parent dies while still owning the home, there would be (under current tax law) a “step-up in basis“, avoiding a large capital gains tax liability for the heirs. That advantage would be lost were the home to be transferred into the name of an adult child
Transferring a home to a child is subject to a five-year look-back period under Medicaid rules. If a home is transferred within five years of a Medicaid application, the applicant may not be eligible for Medicaid because he or she gave away assets which could have been used to pay for care.
On the other hand, the Caregiver Child Exception under Indiana Medicaid rules allows seniors to transfer their primary home to their adult child without a penalty if the child has been providing them with care and lived with the parent for at least two years prior to a Medicaid application. This means a parent may transfer a home to an adult child without violating Medicaid rules on asset transfers. The concept is to allow adult children to care for their parents at home as opposed to moving them into a Medicaid-funded assisted living residence or nursing home.
Many seniors believe their only option to qualify for Medicaid is to “spend down” their assets. While this is true in some cases, proactive Medicaid planning can protect a substantial portion of your assets if done correctly. The eligibility rules are complicated, as is the application process, so our elder law attorneys help clients navigate the process well before the need arises to tap the program’s benefits..
– By Ronnie of the Rebecca W. Geyer Blog Team