Should I give my home to my children? Many seniors do just that. But it may turn out to be a big mistake. Giving your residence property to your children during your lifetime may not be the best planning option for you. Don’t do it without getting expert legal advice first.
People have many reasons for putting their homes in their children’s names. Among them is the desire to save on the taxes and legal costs that arise when the home transferred to their heirs at death. And for many seniors an even more important goal is to avoid losing the home if they ever need nursing home care.
The transfer of a home from a parent to a child may in fact result in a savings on death taxes, assuming the parent predeceases the child. Unfortunately, these savings may be outweighed by several negative consequences that are often overlooked.
If you are thinking about making a lifetime transfer of your home to your child or children, there are many things to consider first. Consider the following issues before you take this drastic step:
The Capital Gains Tax Trap: If you give away your home, and it has gone up in value, your child may well have to pay a capital gains tax when the home is someday sold. The capital gains tax would most likely have been avoided if you owned and sold the home yourself during your lifetime or if the home was sold after your death.
Loss of Control: If you give away your home, you may lose control over it. You may have no say in whether it is sold or mortgaged. You could be charged rent. Even if you trust your child, your child may divorce or die and your home may pass to a son or daughter in law or grandchildren.
Creditors: If you give away your home, you may subject it to the creditors of your child.
Public Benefits. Giving away your home may cause you to lose certain public benefits you receive like SSI and Medical Assistance (Medicaid).
Gift Tax Return: If you give your home to your child, you may need to file a federal gift tax return. (Whether you will need to pay gift tax depends on the value of your home and the value of other assets you have given away in the past).
Property Tax: If you give away your home you may no longer qualify for annual property tax forgiveness programs. For example, the Pennsylvania property tax rebate program benefits homeowners age 65 and older; widows and widowers age 50 and older; and people with disabilities age 18 and older. The income limit is $35,000 a year for homeowners and half of Social Security income is excluded. The maximum standard rebate is $650, but supplemental rebates for qualifying homeowners can boost rebates to $975.
Creating Ineligibility for Medical Assistance Benefits for Nursing Home Care: Although many people give away their home to avoid losing it if they ever go into a nursing home, the transfer can actually raise their nursing home costs. Here is how the nursing home issue plays out.
When you are no longer able to pay privately for needed nursing home care, you state Medicaid program (in Pennsylvania it is called Medical Assistance) helps pay for your care. A nursing home resident can generally qualify for Medical Assistance without selling their home so long as they still consider it to be their primary residence.
Moreover, if you give your home to your children and then need to apply for Medical Assistance within 5 years of that gift, the transfer of this otherwise protected asset can make you ineligible for benefits you otherwise would have received. The ineligibility period depends on the value of the gift (your home in this instance). Therefore, transferring your home to your children may be a terrible mistake if you are likely to need nursing facility or Medicaid funded home care in the near future.
You should consider that, although the state does not place a lien against your home while you are receiving Medical Assistance, it may try to recover the amount it contributed towards the cost of your care after you die. This program, known in PA as the Pennsylvania Medical Assistance Estate Recovery, is a collection program required by federal law. It only applies to what Medical Assistance pays for nursing facility, home or community based services and any related hospital and prescription drug services for individuals who were 55 years of age or older. Estate recovery is often misunderstood and sometimes inhibits seniors from applying for much-needed services, but with proper planning and good advice, estate recovery can almost always be avoided.
Parents and children are usually unaware of all of the potential consequences when they transfer the home. There are many planning tools and options available to help families achieve their objectives. Every situation is different. You should never give your home away without understanding all of your options and fully considering the advantages and disadvantages of such a transaction.