Many people plan to continue to live in their home as long as they are able to do so. If they eventually ever have to go to a nursing home, your house and its contents would NOT have to be sold in order to qualify for Medicaid. However, it is still at risk because the state has a right to recover whatever it pays for your care from your probate estate. Your home may be protected from such estate recovery by keeping it out of your probate estate.
The simplest approach to doing so would be to deed it to your children. There are four problems with doing this:
- You lose control over your house. Your children now are the tile owners of the home and as such it would be subject to and vulnerable to your children’s debts or if they were sued or divorced.
- This would be a transfer which would make you ineligible for Medicaid for the following 60 months.
- Your children would lose the opportunity of getting a “step-up” in basis by receiving the property through your estate. Your children would be subject to potential capital gains taxes that could be avoided.
- Selling the home later can become problematic. Many clients expect at some point to need to sell their home and possibly downsize. By transferring the home to your children you have added complexity with title issues and taxation issues with any sale.
So how do you keep the house out of your probate estate so that the state has no access to place a lien on it? How do you ensure your heirs get a stepped-up basis in the house? How should you own the house that allows for a ease of downsizing? There is one SOLUTION: using the Irrevocable Income Only Grantor Trust.
This trust allows you to keep the property out of your children’s hands, allows them to received a step-up in basis, allows you the freedom of selling the property without a hassle, avoids estate recovery and five years after the transfer is completely protected for Medicaid.
Want to lean more? Contact our office for a free consultation.