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Transfer of your Home to
Clients sometimes focus on protecting their home and want to preserve their home for their children. Transferring your home outright to your children has several downsides unrelated to asset protection and Medicaid. First, by making a gift of the entire interest in your home to your children, you lose all ownership and control in your home. Should you have a dispute with your child, he could force you out of the home. Further, if your child should predecease you, the house will be owned by the beneficiary of your child’s will (or heir at law). Therefore, if your child predeceases you, you could be living in a home then owned by your daughter-in-law or son-in-law.
Further, if your child owns your home, any creditors that your child may have in the future could go after the home to satisfy your child’s debts. If a child causes an accident and gets sued, the house may be sold to satisfy a legal judgment. Also, by making a gift of the entire property to your children during your lifetime, you create a potential capital gains issue when they sell it in the future.
The alternatives to making an outright gift of your home to your children include transferring a remainder interest in the home to your children while retaining a life estate and placing your home into an irrevocable income only trust. A life estate under Virginia law does not count as an asset when you apply for Medicaid. Owning a life estate means that your children’s creditors cannot reach the home; you are always in control of the property so long as you are alive; and you do not create a capital gains tax problem for your children. A transfer retaining a life estate or to an irrevocable trust would still be subject to the five year lookback penalty. However, early and proper planning may permit you to protect your home in the event you need nursing home care.
Special rules also apply to transfers of a home to disabled children or to caregiver children. Find out more here.