People, who own their own homes, especially when the mortgage is paid off, often think they should add their adult child or children to the deed so the asset passes to their heir(s) without going through probate. However, this seemingly simple step could lead to a few issues, one of which is making you ineligible for Medicaid for a period of time. That is just the beginning, as reported in a recent article from nj.com, “The risks of changing your home's deed.”
If a senior owns a home that has unrealized capital gains when they pass away and have already added their child onto the deed, then only the parent’s half of the value of the home would be eligible for a step-up in basis. If the senior goes ahead and sells the home while still alive, they can exclude up to $250,000 of capital gains from tax, if it was their primary residence in two of the five years directly preceding the year it was sold.
However, if a child was added and they live out of state, adding them to the deed will mean that their half won't be eligible for the exclusion because their primary residence is in another state.
In addition, if the child has creditors to whom they owe money, those creditors could attach a lien to their 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 their home to their child, it could be an issue if the senior 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.
This sort of decision is best made with the guidance of an experienced elder law attorney who can address the specific circumstances and make sure that all parties concerned understand the implications of the decision. It could be costly for you or your heirs, so you’ll want to be fully informed.
At Family Estate Law Planning Group, our solution to making sure all partied concerned are on the same page is a Family Care Meeting. During this meeting all family members can be on the same page about the parent’s estate plan, and all the finer points of planning can be explained and laid out to benefit everyone involved.
For more information on our Family Care Meeting and estate planning, visit our website and contact us to schedule your consultation today!
Reference: nj.com (January 29, 2018) “The risks of changing your home's deed”