Real Estate Transfers
It is appropriate to have a conversation with your lawyer about the risks and other options before adding a child to the deed to your home. We find that many people should not transfer ownership of their homes, but each case is different. We respect our clients’ rights to decide what is best for their own family situations. Consult with Attorney Gerhard so you can make an informed decision.
Although there are several important exceptions, Medicaid rules generally impose periods of ineligibility where a parent gifts his or her home to a child within the 5-year look-back period prior to an application for Medicaid long-term care benefits.
We are often asked about selling the house to a child for a dollar. A sale to the child for $1.00 is a sale for less than fair market value and is treated the same as a gift.
When contemplating such a transfer, thought should be given to how you might pay for long-term care if you require it within the 5-year look-back. If you need nursing home care before the five-year period elapses, you could have difficulty gaining admission to a nursing facility because the admissions coordinator will be concerned that you may not qualify for Medicaid if your funds run out.
Also, if you do enter a nursing home and are denied eligibility for Medicaid long-term care benefits, your children could be sued by the facility under Pennsylvania’s filial support laws for the unpaid nursing home bill – regardless of fault. An elder law attorney can provide guidance as you make a decision as to whether or not you should transfer ownership your home.
Exempt Transfers
Some real estate transfers are considered exempt and are not subject to the Medicaid transfer penalties. Attorney Gerhard can help determine whether an exemption applies to your situation.
For example, the transfer of your home to a disabled child is exempt. Likewise, the transfer of the real estate to a trust for the sole benefit of a disabled person is not subject to the Medicaid transfer penalty. Special care must be taken in these cases to accomplish the transfer in a manner that does not disqualify the disabled individual from their own means tested public benefits. Trusts are often used to preserve a disabled individual’s ongoing eligibility for public benefits.
The transfer of a home to a caregiver child is also an exempt transfer. The term caregiver child is a term of art under Medicaid laws. A caregiver childis one who lived in the home for the two years immediately prior to nursing home admission and who provided care that kept the parent out of a nursing home during that time. Public policy rewards this family care-giving by not imposing a transfer penalty.
Occasionally siblings live together in a house that they co-own. Transfers to a brother or sister can be exempt from the transfer penalty if the siblings lived in the home for at least one year prior.
To be clear, when a parent gives the home away to a child outright, the parent is losing some level of control over the property. The parent needs to be aware that the person receiving the real estate can lose the home through no fault of their own. A child can lose the house in a lawsuit, divorce, bankruptcy, or die and leave it to the beneficiaries of their own estate.
Parents often consider giving away their homes to children due to a fear of loss to possible nursing home costs. However, risk of loss to a nursing home is just one risk. There are risks of loss when giving the home to the children.
Tax Considerations
There are tax matters to consider as well. If a child is added to the deed and the house is sold during the parent’s lifetime, then there can be capital gains tax consequences when the child someday sells the home. Although there can be some asset protection from nursing home costs, tax matters also need to be discussed.
One alternative to adding a child to the deed as a joint owner, or as an outright owner is to transfer the home by way of a life estate deed. The life estate deed does not eliminate all risks of loss, but with a life estate deed the parent is not giving up his or her right to live in the property during his or her lifetime. The parents retain the life estate and the children only own the remainder interest. The children do not own 100% of the home until after the parents die. Another approach can involve the transfer of the home to an irrevocable trust. Under current law these approaches avoid payback under the Medical Assistance Estate Recovery Program, and also enable the parent to continue paying the maintenance and taxes on the property without creating additional gifting issues that could jeopardize eligibility for Medicaid long-term care benefits.
Power of Attorney
Any of the above real estate transfers can only be accomplished of there is legal authority to do so. If the parent is mentally sharp, then the parent can of course knowingly make the transfer and sign the deed. If there is a valid power of attorney that specifically authorizes such gifting of real estate, then the agent under the power of attorney may accomplish the transfer. The third way to make an exempt transfer is to petition the court for guardianship, and ask the court for permission to make the exempt transfer. Without authority, the real estate cannot be transferred, even if it would be an exempt transfer under applicable Medicaid laws.
There is Pennsylvania case law that holds that a power of attorney that merely allows an agent to engage in real estate transactions does not convey the authority to make a gift of real estate. The power of attorney document can allow or prohibit such gifting, as may be appropriate for each client. Make sure you have the right language in your power of attorney for your own situation.
