If your family is like most, the family home is your largest asset and you are concerned about losing it to the rising costs of health care or to other potential liabilities. So, how can you best protect your home while achieving other planning objectives?
There are many ways to protect your home, each of which may have Medicaid planning consequences and tax consequences that should be carefully explored with an experienced Elder Law Attorney.
You may give your home to another individual, such as a spouse or child, by signing a new deed in that person's name. This will assure that Medicaid can never place a lien on your home and that the value of your home will not be countable as part of your estate assets, thereby potentially reducing estate taxes. However, you may lose your real estate tax exemptions, such as STAR or veterans deductions. Further, the new owner may incur significant tax consequences, particularly if the house is not that person's primary residence.
The Life Estate
You may give your home to another individual and retain a life estate. The retained life estate means that you have all rights and obligations regarding the property during your lifetime. For example, you have the right to reside in the home for life. You will also be responsible for up-keep and taxes while retaining all real estate exemptions. Upon your death, the property will pass to your designated beneficiary automatically (i.e. without the probate of your Will). The transfer of the home with a life estate protects the home from Medicaid, as a lien can never be asserted against the home. The life estate also has tax advantages for your beneficiary, which may reduce or eliminate capital gains taxes when the house is sold.
You may transfer your home to a Trust. An irrevocable trust will protect the home from Medicaid and, like the life estate, you will keep your real estate tax exemptions. Your heirs will get certain tax advantages and will inherit the home without the need for probate of your Will. Unlike the life estate, the house may be sold without losing any capital gains exclusions.