Probate Avoidance Planning Can Bite Back!

LTC for couplesMedicaid utilizes a 'five-year lookback' to determine what assets you gave away within five years of your application for benefits. Transferring your home could make you ineligible for a period of time.

It’s not uncommon for a senior who’s a widow or widower to want to help his or her children with the estate, by re-deeding their mortgage-free home to include a child or children.  However, there’s a specific way to do this.  It is important to be aware of the effect of this action on government benefit programs, like Medicaid.

In order to avoid the probate process, Dad could change the deed to the home to add his adult child. In that way, the home will avoid probate at his death.  Sounds like a good idea, right?  There can be some potentially negative consequences.  For example, there's the issue of the unrealized capital gains.  Only the decedent's undivided portion of the home will receive a step-up in basis.  That means the child will pay a capitals gains tax on their undivided portion when the house is sold.  That same issue arises if Dad needs to sell the home while he’s still alive; the capital gaps exemption of  $250,000 is applicable only to his undivided portion. 

Then there is the issue of asset protection.  What happens if Dad's daughter has creditor issues?  Those creditors could attach a lien to her undivided half of the Dad’s home.  Then there is the issue of long-term care.  If Dad transfers half of his home to his daughter, it could be an issue if he needs long-term care and needs to qualify for Medicaid. Medicaid can look through your financial records for the previous five-years in order to determine if your assets were given away. Transferring the home could mean that Dad is ineligible for assistance from Medicaid even if he otherwise has no money.

If you are a senior, chances are that you will need long-term care at some point during your lifetime.  Before you gift any of your assets it would be wise to consult an experienced elder law attorney about your specific circumstances to be certain you understand all of the consequences of taking such actions you're planning.  We can help as we offer a complimentary consultation; schedule yours today by calling us at 757.259.0707 or  ‘request a consultation’ online.

Reference: nj.com (January 29, 2018) “The risks of changing your home's deed”


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Update to our Process

The unprecedented coronavirus pandemic has taken our entire country by surprise. We understand how difficult this time is for America’s businesses and families.  However, we believe it is vitally important that we make every effort possible to continue to offer solutions that avoid disrupting our important partnership with you, your family and friends.  As you know, estate planning is not something that should wait for a more convenient time, therefore the opportunity to address your important goals both during and after this crisis should not wait.  To that end, we have added the option of a ‘virtual consultation’ to our office process.  You will now have a choice of either meeting with us in our office or in the comfort of your own home.