Two Reasons Why Giving Your House to Your Kids may not be the Best Way to Protect it From Medi-Cal
Are you afraid of losing your home if you have to enter a nursing home and apply for Medi-Cal? While this fear is well founded, transferring the home to your children may not be the best way to protect it. The family home does not have to be sold in order to qualify for Medi-Cal coverage for nursing home care. If you receive help from the State for nursing home care, the State must attempt to recoup from your estate whatever benefits it paid for your care. This is called “estate recovery”. If you want to protect your home from this recovery, you may be tempted to give it to your children. Here are two reasons not to:
1. Loss of Control: Transferring your home to your children means you will no longer own the house, which means you will not have control of it. Your children can do what they want with it. In addition, if your children are sued or get divorced, the house will be at risk.
2. Adverse Tax Consequences: Inherited property receives a “step up” in basis when you die, which means the basis is the current value of the property. However, when you give property to a child, the tax basis is the same price that you purchased the property for. If your child sells the house after you die, he or she would have to pay capital gains taxes on the difference between the tax basis and the selling price unless the child were to live in the house for at least two years before selling it.
There are other ways to protect a house from Medi-Cal estate recovery, including putting the home in a trust. To find out the best option in your circumstances, consult with your attorney.
Ms. MacDonald’s practice is limited to Estate Planning, Probate & Trust Administration. Ms. MacDonald maintains her practice in the Santa Clarita Valley at 25115 Avenue Stanford, Suite A-209, Valencia, California. She can be reached at 661-294-6464.
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