The kids will get it anyway once I die, so why not transfer my home to them now. God forbid I get sick and require long term care, I don’t want the equity in my home to go towards these expenses. This may sound like a good idea, but there are unforeseen pitfalls to be aware of:
- You will not be entitled to the STAR exemption on your real estate taxes or to deduct the real estate taxes paid on the house;
- Your children who now own your house could render them ineligible for Medicaid or SSI benefits;
- Upon the death of a child, the house will be part of that child’s estate and if the beneficiary of his/her estate is a spouse, that spouse is now the owner of the house you live in;
- If a child has debts or judgments, they may become liens on the property;
- If a child ends up divorced, it is possible that the house could become the subject of an equitable distribution award;
- When the children go to sell the home after you are gone, they will recognize substantial capital gains taxes. The reason for this is that they acquire your basis in the home (the price you paid for it when you purchased) and will pay taxes on the difference between that price and the price they now sell for. Had the property stayed in your name, they would get what is called the stepped up basis” in the property which would be the value at the time of your death. A significant tax savings would be realized in this scenario.
The proper vehicle for protecting your house is to set up a Medicaid Trust. By doing this you will actually transfer your home into a trust with your children being named the beneficiaries of the trust. Thus, they will become the owners by virtue of the trust agreement at the time you die. In the meantime, you are taking affirmative steps to shield your home from liens due to medical bills if you fall ill and require long-term care. Additionally, since the home will be in the name of the Trust at the time you die, the children will not need to go through a Surrogates Court proceeding in order to arrange for the sale of the house or transfer of the house into their names.
Contact an attorney who specializes in estate planning to insure that you have taken the right steps so that you can have piece of mind that your home and other assets are being passed on to your family and not to the IRS and creditors!
If you would like to further discuss your estate plan, I can be reached at: