Giving Your House Away and Medicaid Transfer Penalties

One question I am often asked is whether clients should give their homes to their children. The usual reason for the question is the parents wanting to get eligible for Medicaid quicker and save the house for the children. The decision is not simple.  Once you give your house to your children, your children can be sued, go through divorces or bankruptcy. You can find out the hard way that your children’s problems can cause you to lose your house! If you never need Medicaid and never stay in a nursing home, you could have passed that home to your children with a basis step-up, meaning your children pay less capital gains tax when they sell the home.

The biggest trap is the Medicaid transfer penalty trap.  For every $5,500 worth of house you transfer, you and you wife potentially have a one month transfer penalty to deal with should you need Medicaid to cover your nursing home bills within 5 years.  For example, if your home was worth $110,000 at the time you gave it to your children, you or your wife would have 20 months of ineligibility for Medicaid at any time in the next 5 years should you need nursing home care. The penalty starts when you would otherwise be eligible for Medicaid. Who pays?  Quite possibly, your wife and your children will pay.

Before giving your home away, consult with an elder law attorney and determine the best approach and whether the risks are worth it. Your attorney can discuss life estates, trusts or other options that may help reduce some of the risks and help you evaluate your particular situation.


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