Should I Give My House to My Kids?

Lots of people have heard about giving away assets to protect them from being used for nursing home expenses. However, giving your house away is not a decision to be taken lightly.

The idea behind giving away (the fancy legal term is “divesting”) your house is to take it out of the equation when your assets are being counted by governmental assistance programs like Medicaid. Medicaid is a federal government program that can help to pay some or all of a person’s nursing home expenses, if they are financially eligible.

Not having to count the value of your home when applying for Medicaid is a huge benefit to divesting. However, we always want clients to understand the implications of divesting their home before actually doing so.

First, most married couples don’t know that their house is already protected from nursing home costs as long as either the husband or wife lives in the home. So, if wife goes to the nursing home, husband can still protect the value of the home even without divesting (he will have to do a bit of additional planning to accomplish this). Second, we encourage clients to avoid divesting their home or recreational property directly to their children. Rather than divesting to the children, we prefer to use an Irrevocable Trust to hold onto divested assets.

Irrevocable Trusts are preferred over divesting directly to children for a variety of reasons. One key advantage is that the Irrevocable Trust allows your children to take advantage of a “step-up” in basis for the properties upon your death. This can significantly reduce, if not eliminate, the capital gains taxes owed by your children should they sell your properties after you pass away. Another advantage is that Irrevocable Trusts protect your property from your children’s creditors. While it is not a fun thing to think about, we never want a child’s debts to attach against the property and create issues for the other children when it ultimately comes time to sell.

While there are many positive benefits to Irrevocable Trusts, they are not for everyone. We do not like to use any divestment strategies for clients that may need the particular assets to fund their own retirement. It is important to remember that divesting assets is a one-way street. Assets transferred to an Irrevocable Trust can no longer be used to pay for your own expenses. Even if your Trust would sell your home during your lifetime, the Trust would receive the proceeds from the sale and you would not be able to use the funds for your own personal expenses.

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Jon L. Fischer

Business & Corporate Law and Elder Law Attorney at McCarty Law LLP
Jon focuses his practice on business formations and transactions, commercial and residential real estate matters, and estate, probate and Medicaid planning as he aims to help clients in their time of need.
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