Transferring the House to the Children
Families frequently ask about transferring the parents' house title to an adult child or children to "save the house from the nursing home." The parents have heard about doing this from their friends and relatives, as the "thing to do." While such a transfer is appropriate in some instances, for the most part I do not recommend removing the title of the home from a parent's or parents' names.
There are many reasons for not transferring the title of the parental home to the children. First and foremost is a Medicaid issue. If a husband and wife reside in the home, and the home is titled in both names as husband and wife, there is protection for the home from creditors of one or the other of the spouses. If one of the spouses enters a nursing home and applies for Medicaid, then the house is automatically protected for the other spouse. However, if the title was transferred
to an adult child or children, then the protection for the spouse who remains at home is lost. The home is often a way to spend down excess resources of the institutionalized spouse, by making necessary home repairs or upgrades to increase the value to the spouse who remains there. This is not a legitimate way to spend down excess resources if the spouse no longer owns the home.
An even more disturbing course of events can occur if the home title is transferred to an adult child or children within five years of a parent entering a facility and requiring a Medicaid application. In this case, the transfer of the home was a gift, and will result in an extended period of ineligibility. Since February 8, 2006, the penalty period on any gifts begins when the person applying is otherwise eligible for Medicaid, but for the gift. Since older persons can never be
sure that an unexpected event will result in a need for nursing home care, transferring the title of the home is a risky venture.
As you can see, “saving the house from the nursing home” is an insufficient reason for transferring the title of the home. There are some instances where an adult child resides with a parent or parents for more than two years, and is instrumental in keeping that parent out of a nursing home; a caregiver child exemption is appropriate in this instance, and the house can be transferred to that child upon the parent’s entry into a nursing home to avoid any Estate Recovery claim. A nursing
home never takes the house, although the Department of Welfare may exert a claim if Medicaid monies are paid for the parent, and the home is still available when the parent passes away.
There are additional reasons that transferring the title of the home to adult children is usually not the best course of action. The parent or parent loses control of what is likely their largest asset, one that could be sold to pay for care in a different care setting. The adult child or children could force the parent to leave the home. Creditors of the adult child could force payment for the child’s debt against the value of the home. Marital problems with the adult child could
result in issues related to the home. The capital gains tax exemption for the primary residence will be lost, resulting in a potentially large tax bill for the adult child upon the sale. Additionally, the parent cannot obtain a reverse mortgage or any property tax rebates.
It is important to consult with a qualified attorney, preferably one who is versed in elder law, before taking an important step such as transferring the title of the parents’ home.
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David A. Megay, Esq., and James C. Kovaleski, Esq., speaking at SCORE business planning seminars on 11/8/10, 1/10/11, 4/25/11, 9/12/11, and 11/7/11 (contact SCORE at 610-327-2673).