Don’t Lose The Family Home To Rising Nursing Care Costs!

There are ways to protect your home from being lost to the rising costs of Nursing home care. By: Douglas L. Kaune, Esquire.

Douglas L. Kaune

One of the greatest fears that spurs clients to do Nursing Home and Medicaid qualification planning is that their home will have to be sold and the proceeds will be spent on long term care. Fortunately, there are a number of planning options available to protect the family home. Some of these planning options require advanced planning, but others utilize exceptions to the general Medicaid qualification rules that many are not aware exist. Check out this recently posted UTBF article for additional considerations and links. We have also prepared three great reports that are presently being offered on this site for free. One of those reports is entitled “Protecting the Family Home.” Sign up on the top right hand side of this page to get these free reports.

Protecting the family home from long term care spending can be very complex.  There are any number of income tax, inheritance tax and asset ad creditor protection issues that are intertwined with the Medicaid and Nursing Home spending concerns.  Many clients come to me asking, “Can’t I just sell my house to my children for a dollar?”  The quick answer is yes, BUT…!!  First of all a sale for a dollar is really a gift of the value of the house.  Don’t not fool yourself by calling it a sale.  There are a multitude of factors that play into the transfer of the family home.

Of primary concern is making sure the home is protected for the lifetime of the person making the gift.  If a parent is living at home and wants to protect the home from possible future long term care needs he or she should take precautions to make sure they can continue to reside in the home and the home will not be pulled out from under him or her.  The most frequently used protection is the transfer to the Medicaid Asset Protection Trust.  If properly drafted, the Trust will allow the home to be transferred to a safe location for the balance of the parent’s lifetime.  The home owned in the trust will not be open to the creditors, lawsuits, divorce or spending habits of the individual children.  This allows the parent to feel more confident that they will not lose the home to something outside of their control.  While we want the parent to achieve the planning goal of protecting the home from nursing care expenses, we do not want them to unwittingly open themselves up to possible harm.  A transfer to individual children is fraught with danger, so please be careful.

Please also be aware that there are very complex Federal Income Tax and PA Inheritance Tax issues related to the transfer of the home.  You must be able to determine the income tax basis for the home before it is transferred so that you can consider the best options for transferring the home in a tax advantaged way.  Knowing the tax basis will allow you to know the impact of possibly losing the $250k capital gains tax exemption for selling the primary residence.  By gifting the property you or a family member might be causing tens of thousands of dollars of tax loss that could be avoided with proper advice.  I urge you to seek legal guidance before transferring the home.  This is not to say you cannot transfer the home.  You can, but you might be able to protect the home from nursing home spending, protect the person making the gift AND save taxes at the same time!

Douglas L. Kaune, Esquire is a member of the National Academy of Elder Law Attorneys (NAELA) and Partner with the full service law firm of Unruh, Turner, Burke & Frees, P.C. Offices are located in Malvern, Phoenixville and West Chester and also serving Philadelphia, King of Prussia, Frazier, Royersford, Wayne and other towns in Chester County, Montgomery County (Norristown), Delaware County (Media), Bucks County, Berks County, Philadelphia County Pennsylvania (PA).