As people age they start to consider transferring wealth to the next generation. There are both sentimental and practical reasons for making transfers prior to death. If your parents have started to discuss asset transfers with you it is likely that you both have questions and concerns about the best way to accomplish the transfer of wealth and assets. Specifically, you may be asking “ should my parents give me their home? ” There is no easy answer to that question; however, there are some common factors that should be considered.
Your parents may simply wish to give you their home because they want you to be able to enjoy it while they are still alive. If this is the case, the only real additional consideration will be the tax ramifications of the transfer. All gifts made both during your lifetime and at the time of death are potentially subject to federal gift and estate taxes. In addition, capital gains taxes may apply down the road if you decide to sell the home so you should have a clear understanding of what basis will be used and the capital gains tax liability you may face. For these reasons, you should both discuss the potential transfer with your estate planning attorney and your financial advisor.
Another reason your parents may wish to give you’re their home is because they foresee the need to qualify for Medicaid in the future. Because most private health insurance policies and the Medicare program do not cover the costs associated with long-term care, many elderly individuals turn to the Medicaid program. Medicaid does pay for long-term care; however, you must qualify for benefits first. To be eligible for Medicaid your income and assets must fall below the program limits. Countable resource limits for Medicaid are typically very low — $2,000 for an individual applicant. For this reason, people often make the mistake of transferring assets out of their name when they foresee the need to qualify for Medicaid in the near future.
Unfortunately, Medicaid’s “look-back” period makes these asset transfers essentially meaningless. The Look-back period extends back five years from the date of application and basically allows Medicaid to ignore any assets transfers made during that time period. Therefore, transferring a home that your parents own to you and then applying for Medicaid a short time thereafter will not get around the asset limit. Moreover, a primary residence may not be a “countable resource”, meaning that the equity in the home may not count when determining the value of assets owned by an applicant. Because the Medicaid rules are so complex, and subject to change, it is important to include Medicaid planning in an overall estate plan.
Regardless of the reason why your parents are considering gifting their home to you it is imperative that you discuss any potential asset transfers with your Illinois estate planning attorney. Click here to schedule a consultation.
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