Will the Nursing Home take my house?

By
January 16, 2019

When faced with the possibility of paying for nursing home care, many people I meet with are concerned about what will happen to their house. Inevitably, I am asked, “Will the nursing home take my house?” To protect the house, clients want to immediately give it away to their child or children. Although this sounds like a great plan and an easy solution to protecting the house, there are some hidden pitfalls that must be navigated. Briefly, here are a few things to consider before giving your house away.

5-year look back.
A house is typically an exempt asset. This means it will not be looked at to determine if you are eligible for medical assistance (i.e., Medicaid) to help pay for your nursing home care. However, if you give your house away, that gift will impact your eligibility for Medicaid. Making gifts will cause Medicaid benefits to be withheld for a certain period of time, called a “penalty period.” The length of the penalty period is determined by the value of the gifts made in the five years prior to the date you apply for Medicaid.

So, if you need nursing home care within the five years after you have given your house away, you now have to pay for your nursing home care.

People are risky.
Giving your house away means you no longer own it. Your children own it. As owners, your children will be your landlords. They determine the rent. They also determine whether or not to sell the home. Even if you think your children will never evict you from your home, situations may arise that are beyond your children’s control that would put the house at risk.

Children go bankrupt. Children get divorced. Children develop vices that put their assets at risk. Children can even need nursing home care before their parents. If something happens in your children’s lives, you may no longer be able to live in the house you were trying to protect.

Even if you keep ownership for your life (i.e., a life estate), this will not fully protect your home. Life estates created after August 1, 2014, are at risk for having a lien placed on them for any Medicaid benefits you received. In addition, with a life estate your children have ownership in your house. They have to agree to any sale of the house. If they go through divorce or bankruptcy, or need nursing home care, their ownership interest in the house is at risk.

Taxes.
Another reason to keep your house is taxes. By giving your house to your children (even if you keep a life estate), you are setting up your children to pay taxes. Giving the house away may protect it from the nursing home, but now your children will lose money to Uncle Sam.

When your house is sold, your children will not qualify for the capital gains tax exemption for a residence because the house is your residence, not theirs. This means they will pay some capital gains tax. This is true whether or not you give them the house or keep a life estate interest in the house.

To make matters worse, the amount of capital gains tax your children will pay will be determined by the difference in the sale price and the price you paid for the house. It is not the difference in the sale price and the value of the house on the day you gave it to them. This can result in significant capital gains, especially if you bought your house a long time ago.

Better way to give the house away.
A better alternative to giving the house to your children is to give the house to an irrevocable trust that is designed to be Medicaid compliant, so you can use the trust and still apply for Medicaid, if needed. The trust must be irrevocable to protect your home. A revocable trust will not protect your home. Yes, the gift to the irrevocable trust is still subject to the 5-year look back, so planning early is best. However, the irrevocable trust is not risky, like your children. The irrevocable trust is also designed to maintain the tax benefits you, as the owner of the house, have and reduce the capital gains tax your children may have to pay in the future.

As you can see, protecting your house from the nursing home can be more complex than you had imagined and have unintended consequences for you and your children. You should talk with a qualified elder law attorney before giving your house away.

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Ruder Ware Alumni

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