Look Out For These Tax Issues When Transferring Your Home To Your Children
For some people, the idea of signing over their home to their children later in life sounds appealing. They figure that the home would stay in the family, and the parents can reap some benefits such as a lower asset amount when applying for Medicaid. But the truth is that the act of transferring your home to your children is potentially one of the worst decisions you could ever make.
Medicaid Will Not Approve
Medicaid has a look-back process where it examines your asset transfers from the previous five years to see if those transfers may have been done to avoid paying for long-term care. The transfer of your home to your children will show up in the look-back process, and the value of your home will cause your Medicaid approval to be significantly delayed.
Tax Gains
When you transfer your home to your child, your child then assumes the same value of ownership the parents had. For example, if the value of the home is $150,000.00 when it is transferred, then the child automatically has a tax basis of $150,000.00 in the home. Later on, if the child sells the home for $350,000.00, then the child would be responsible for paying capital gains tax on the difference of $200,000.00.
Gift Tax
In their rush to avoid problems with Medicaid approval, the parents may have set themselves up for a massive tax bill they were not expecting. It is possible that if you gift your home to your children, then you could be responsible for paying a gift tax on the value of the home.
Subjecting The Property To Life Issues
The moment a home is transferred to a child and the child accepts ownership, the property then becomes the legal property of that child. Contractors and other vendors can put liens against the home for unpaid invoices and creditors could possibly sue in court to take the home if the child has unpaid debts. Transferring home ownership to a child does not guarantee that the home will remain in the family. In some cases, it could expedite the family’s loss of the home.
We encourage you to contact our experienced legal team before making any decisions about your parent’s assets as they approach their later stages of life. Transferring the ownership of a home to a child sounds like a great idea, but it is filled with problems and potential financial pitfalls. Our asset protection attorneys can go over the situation with you and help you to understand the options that you may have. We can stand by your family’s side as you try to protect the family home and other assets from the Medicaid application process.