by Thomas D. Begley, Jr., Esquire, CELA
Studies show that 70% of Americans will require some form of long-term care be it nursing home, assisted living or home care. The cost of this care can range from $20 per hour or more for home care to $12,000 per month for nursing home care. If a single person applies for Medicaid to pay for this care, the Medicaid agency will require that the home be sold and that the proceeds of sale be used to finance the care. If a Medicaid applicant is married and owns a home as tenants by the entireties with his or her spouse, then upon death of the Medicaid recipient a lien will be placed upon the home to repay Medicaid for the medical assistance paid on behalf of the deceased Medicaid recipient.
How is it possible to protect the home and still qualify for Medicaid? The idea would be to transfer the home five years before applying for Medicaid, and therefore, the transfer would be beyond the Medicaid five-year lookback and would be protected.
Most people who transfer their home want to transfer it to their children, wait the five years, and then have the home protected from Medicaid. This is usually not a good idea for several reasons. These include:
- Risk factors. If a home is transferred to a child, the home could be lost, in whole or in part, if:
- the child has creditors who sue the child;
- the child winds up in a divorce; or
- the child is on public benefits and the transfer may cause the child to lose those benefits.
- Capital gains tax. If a home is transferred to children, the parent’s $250,000 exemption for singles or $500,000 exemption for married couples will be lost. By transferring to a properly-drafted trust, this benefit can be preserved. For most people, the capital gains tax between federal and state runs approximately 25%.
- Step up in basis. If a home is transferred to a properly-drafted trust, the children will receive a step up in basis on the parent’s death and little or no tax will be due upon sale of the property.
- State real estate tax benefits. In New Jersey there are a number of real estate tax benefits attendant to ownership of a primary residence. These include a homestead tax rebate, senior citizen’s deduction, veteran’s deduction, veteran’s exemption for disabled veterans, and a tax freeze. If the home is transferred to a trust with a properly-drafted deed, these benefits can be preserved.