Although you generally do not have to sell your home in order to qualify for Medicaid coverage of nursing home care, the state could file a claim in your probate estate against the house after you die. If you get help from Medicaid to pay for the nursing home, the state must attempt to recoup from your estate whatever benefits it paid for your care. This is called Medicaid “estate recovery.” If you want to protect your home from Medicaid estate recovery, you may be tempted to give it to your children. In Florida, that could be a costly mistake. Even for states other than Florida, there are at least three reasons not to transfer your home to your children.
Reason No. 1: Florida Homestead Protection.
The first reason you probably will not want to transfer your home to your children in Florida, is that in Florida your homestead property is protected from claims of creditors, including Medicaid estate recovery. The Florida Constitution specifically provides that creditors (including Medicaid) cannot attach a lien to your homestead property. In Florida, even if you go into a nursing home, there is a presumption that you have an “intent to return” to your homestead property which continues the protection from creditors even if you move into a nursing home. Medicaid estate recovery, therefore, is not an issue in Florida for your homestead property, so long as it retains its homestead character.
The homestead protection from creditors continues through the probate estate in Florida, unless you have no legal heirs at the time of your death. “Legal heirs” are defined in the Florida Statutes, Chapter 732. If there is a chance that you won’t have legal heirs, or if you want certain specified heirs to receive your homestead property at your death, an enhanced life estate deed (sometimes called a “lady bird” deed), can be used to provide for the automatic transfer of your homestead immediately upon your death. The transfer of the ownership of the home will not be subject to probate or to the claims of your creditors (including the State of Florida Medicaid estate recovery). Florida is one of just a few states that recognize the enhanced life estate deed. The transfer by an enhanced life estate deed also avoids the other three reasons for not transferring your home to your children that are listed below.
Reason No. 2: Medicaid ineligibility.
Most people do not realize that transferring your house to your children (or someone else) may make you ineligible for Medicaid for a period of time. The Florida Medicaid agency looks at any transfers made within five years of the Medicaid application. If you made a transfer for less than market value within that time period, the Florida Medicaid agency will impose a penalty period during which you will not be eligible for any Medicaid benefits. Depending on the house’s value, the period of Medicaid ineligibility could stretch for years. The right to receive Medicaid benefits would not begin until the Medicaid applicant has almost completely spent down all of their money and other assets.
There are certain circumstances which can allow you to transfer a home without penalty. You should consult a qualified and experienced elder law attorney before making any transfers. The exceptions that might allow you may freely transfer your home to the following individuals without incurring a transfer penalty include:
(a) to your spouse;
(b) to a child who is under age 21 or who is blind or disabled;
(c) into a trust for the sole benefit of a disabled individual under age 65 (even if the trust is for the benefit of the Medicaid applicant, under certain circumstances);
(d) a sibling who has lived in the home during the year preceding the applicant’s institutionalization and who already holds an equity interest in the home;
(e) a “caretaker child,” who is defined as a child of the person applying for Medicaid benefits, who lived in the house for at least two years prior to the applicant’s institutionalization in a nursing home, and who during that period provided care that allowed the applicant to avoid or delay moving into a nursing home stay.
Reason No. 3: Loss of Control.
In addition to the potential loss of Medicaid benefits to pay for nursing home care caused by a transfer to your children, after transferring your house to your children, you will no longer own the house. That means you will not have control of it. Your children can do what they want with the house. In addition, if your children are sued or get divorced or die, the house will be vulnerable to their creditors.
Reason No. 4: Adverse Tax Consequences.
Adverse tax consequences. Inherited property receives a “step up” in tax basis when you die, which means the tax basis is the current value of the property. However, when you give property to a child, the tax basis for the property 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. The only way to avoid some or all of the tax is for the child to live in the house for at least two years before selling it. In that case, the child can exclude up to $250,000 ($500,000 for a couple) of capital gains from taxes.
There are several other ways to protect your house, and other assets, from Medicaid estate recovery, including putting the home in a trust. To find out the best option for your circumstances, consult with an experienced elder law attorney. We can help you make the best decision for your family and circumstances, preserve the value of your home for your loved ones, and otherwise help you qualify for Medicaid benefits to pay for your nursing home stay. Call us and schedule an appointment to see how we can help you.