By Elizabeth A. Caruso, Esq.
Myth or fact? It’s a good idea to transfer my house to my kids for $1 so that the nursing home doesn’t take it.
This is a myth!
I have had many clients come to me recently and ask me if transferring their home directly to their children is a good estate planning move. More often than not, the answer is no, this is a very bad idea. Transferring your home to your loved ones to avoid it going to a nursing home may seem like a good idea, but there are some unintended consequences associated with this transaction.
First, if you are worried about long-term care costs, any transfer of any asset to any other person comes with a five-year look-back period from the date of the transfer. This means that from the day you transfer your house, you need to stay out of the nursing home for at least five years for the transfer not to count against your eligibility for long-term care benefits.
Second, if you give away an asset for less than fair market value, this is considered a gift and there are tax consequences to that transaction. The recipient of your gift receives the asset at your tax basis and all of the untaxed gains that come with it. If they later sell the asset, they would be responsible for all of the tax on the gain, not just from the time they received the asset. As an example, if you purchased you house in 1980 for $50,000 and you gift it to your children who sell in in 2025 for $700,000, they will owe capital gains taxes on $650,000. If they inherit the house from you, through a trust or a will, they get the stepped-up basis to your date of death value. This can be huge tax savings for your children. Additionally, you, as the gift giver, may need to file a gift tax return reporting the gift.
Third, giving away an asset to someone else puts them in control instead of yourself. Once it’s gifted, you don’t make the decisions anymore. If it’s a house and you want to borrow from the equity, the new owners need to sign onto that equity loan, too. What if they have bad credit and now you don’t qualify? What if they have bad credit and now their creditors attach your home? What if your married children get divorced?
These consequences can be avoided with the correct estate plan. It is possible to protect your home from having to be sold if you need long-term care, but you want to do it in a way that does not trigger unintended tax consequences or put it at risk of other’s creditors.
An elder law attorney can walk you through these options and help you protect your home in a way that also protects you.
About the Author: Elizabeth A. Caruso, Esq. is an attorney at Legacy Legal Planning, LLC, in Norwell. She has been practicing estate planning, probate, and elder law on the South Shore for more than a decade. If this article has sparked questions for you, please feel free to reach out via phone 781-971-5900 or email elizabeth@legacylegalplanning.com to schedule a time to discuss your unique situation.
