Most older adults believe that it’s easier for everyone involved – loved ones, beneficiaries, and executors – if they transfer full or partial ownership of their home prior to their passing. However, California elder law attorneys will caution you that there are several risks to consider when transferring ownership of your home that might harm you or your loved ones. Here’s everything you should know before making such a decision:
There could be tax issues
If you transfer your principle residence, you risk being disqualified from some or all of the capital gains tax exclusion and you may trigger an unnecessary tax liability. If you decide to sell your home after sharing ownership with your children, they will then have to pay capital gains taxes on the increased value of the home. This is a problem if you’ve lived in the same home for many years and the value of the property has increased significantly since you purchased it.
It may cause a Medi-Cal penalty
California’s medicaid program is called Medi-Cal and has complex rules. For those that qualify, it helps to pay costs of nursing home care, in-home care on a limited basis through In-Home Support Services, and some assisted living through the Assisted Living Waiver Program. The qualification rules are often misunderstood which can lead to major negative consequences. In California, there is a 30-month look-back period and equally long penalty period. That means California will look back 30 months in time to examine what type of gifts and property transfers you made. This may trigger an equally long penalty period rendering you ineligible for Medi-Cal for that length of time. This means a seemingly simple transfer of your house to an adult child could cause you to be ineligible for critical benefits for which you would otherwise be qualified. This is a big problem because without Medi-Cal you or your family will be forced to pay the full cost of long-term care on your own which has the potential to exhaust all of your savings and resources and likewise limit where you want to receive care, such as at home or at the assisted living community you really like. That is why before making such a decision, talk to a California elder law attorney who can walk you through the rules in California if you own property.
It may disqualify you or case a penalty for veteran benefits such as Aid and Attendance
The federal government provides benefits and aid to wartime veterans and their spouses who are disabled or 65 years of age or older through the Department of Veteran Affairs in a program called Improved Pension. This is often referred to by many as “VA benefits” with the most commonly known pension benefit for wartime veterans being “Aid and Attendance.” While the rule are different from Medi-Cal, they are equally as complex and qualification can be tricky minefield to navigate. There is a 36-month look-back period with an equally long penalty period. So that same seemingly easy transfer of your home to an adult child might also trigger a lengthy penalty period leaving you unable to access a financial benefit through the VA and impacting your ability to afford the care you need and want and preserve your assets for longer.
Your child could experience a divorce
If you transfer ownership of your home to your child – even just a partial ownership interest – and then your child gets divorced, your ex in-law might be entitled to part of the value. It’s very difficult to protect against this risk if you transfer ownership outright to your married child.
Your child could have financial problems
When you share ownership of a home with your child, you also share exposure to each other’s financial problems and risks. For example, if your child accumulates debt that can’t be paid back, is sued, or declares bankruptcy, his or her half of the property could be used to satisfy the debt, or liens could be placed against the property.
You must be partners with your child
Once you transfer ownership of your home, you must all be on the same page about deciding later to sell the home or make major renovations. Your child can always put a stop to a sale or the renovations if they don’t agree with you, or vice versa. While this scenario seems a bit out there, it does actually happen more often than you may think.
If you’re thinking about transferring ownership of your home to a child, or if you’re interested in learning about other asset protection and estate planning strategies to protect your interests as you age, please call our Orange County elder law attorneys at (949) 333-3702 to set up a consultation.
