Many families are concerned about losing their homes to the high cost of health care, and rightfully so. How can you protect your home? There are many ways, each of which has Medicaid planning consequences and tax consequences.
You may give your home to another individual, such as a spouse or child, by signing a new deed in that person’s name. This will ensure that Medicaid can never place a lien on your home and that the value of your home will not be countable as part of your estate assets, thereby potentially reducing estate taxes. However, you may lose your real estate tax exemptions, such as Enhanced STAR or Veterans’ deductions, and you have no guarantee that you can continue to reside in the house. Further, the new owner may incur significant tax disadvantages, particularly if the house is not that person’s primary residence, and the property is subject to creditors, divorce, etc. There will also be a Medicaid penalty period based upon the transfer of the entire value of the house.
You may give your home to another individual and retain a life estate. The retained life estate means that you have all rights and obligations regarding the property during your lifetime. For example, you have the right to reside in the home for life. You will be responsible for all upkeep and taxes and you will keep all real estate tax exemptions. Upon your death, the property will pass to your designated beneficiary automatically (i.e., without the probate of your will). The transfer of the home with a life estate protects the home from Medicaid as a lien can never be asserted against the home. Further, the penalty period assessed on the transfer will be reduced for Medicaid planning purposes. The life estate has a multitude of tax ramifications that must be considered.
You may transfer your home to a trust. An irrevocable trust will protect the home from Medicaid after five years has passed. If properly drafted, you will keep your real estate tax exemptions. Your heirs will get certain tax advantages and will inherit the home without the need for probate of your will. Unlike the life estate, the house may be sold without losing any capital gains exclusions.
Each method of transfer has tax consequences and Medicaid consequences. Make sure you seek legal counsel from the experienced and knowledgeable attorneys at Cona Elder Law before taking any action. Contact us today to get started.
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