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Why you should think twice about gifting your house to your children

On Behalf of | May 21, 2020 | Medicaid Planning |

If you are thinking about giving away your house to your children, be careful. While it can seem like a generous gesture and smart financial move, it actually can cost you and your family more overall.

Because Medicaid is a need-based program, most people need to do careful financial planning in order to qualify if they need to move into a nursing home or long-term care facility in the future. If you own your home, that will be a big part of your Medicaid planning. But signing over title to your children or other relatives is not the best way to reduce your wealth for Medicaid purposes. That is because Medicaid looks at gifts you have made over the five years prior to your application. If your gifts were substantial enough in value, such as a house, they could impose a penalty period, during which you would not qualify for Medicaid.

It also could be costly for the person receiving your gift. The IRS will almost certainly count it as income for the giftee, which could cause them to face a huge tax bill. If you leave your house to your children after you die, as heirs, they will not be taxed on the home’s appreciation in value since you bought it. That will make a huge difference in taxes.

Alternatives to gifting the family home

Though workarounds may be possible, in general it is easier to make different plans for your home, such as placing it in a revocable living trust. As trustee, you can continue to live in and maintain the house. Then the house will pass on to your beneficiaries without having to put it through probate.

Medicaid planning is a complex process. An attorney who practices in this area can break it down for you so that it makes sense, so together you can figure out a sound strategy.