Transferring a residence for the purpose of qualifying for Medicaid is not as simple as doing a quit claim deed to your children. It is a lot more complicated.
Qualifying For Medicaid: Three Ways To Transfer Real Property
There are generally three ways that one's residence can be transferred to qualify for Medicaid:
- Transfer without the reservation of a life estate;
- Transfer with the reservation of a life estate; and
- Transfer to an irrevocable income-only trust
Are you considering transferring your home to protect it? We can help. Call the Westchester County, New York, Medicaid/asset protection planning attorneys at Enea, Scanlan & Sirignano, LLP: 914-269-2367.
Transfer Without The Reservation
More fully referred to as "outright transfer of the residence without the reservation of a life estate," this means the person (transferee) receives the real estate from the owner (transferor) outright, without qualifications.
Some of the advantages include: If the transferee owns and resides on premises for two of the five years of the Medicaid look-back period, the transferee can use the residence as a principal residence exclusion.
Some of the disadvantages include: This transfer is subject to gift taxes, the transferor cannot live on the premises and the transferee receives the property at the original cost basis.
Transfer With The Reservation
By transferring the residence with reservation of a life estate, both the transferor and the transferee have more benefits than by using the previous method, transferring real property without reservation of a life estate.
Some of the advantages include: The transferor can reside on the property and, if the transferee is a nonfamily member, the transferee receives a full step up in cost basis upon the death of the transferor.
Some of the disadvantages include: If the property is sold during the lifetime of the transferor, the transferee will pay a capital gains tax and, since the transferor is entitled to a portion of the proceeds of the sale, it may affect the transferor's eligibility for nursing home Medicaid.
Transfer To An Irrevocable Income-Only Trust
Transferring the residence to an irrevocable income-only trust (also known as a Medicaid asset protection — or MAP — trust) provides many more advantages and few disadvantages of the other two methods, particularly as it applies to Medicaid planning.
Some of the advantages include: For income tax purposes, the creator or grantor of the trust is considered the owner of the transferred property and the transferee can sell the property during the lifetime of the transferor with little or no capital gains tax.
Each of the three methods has more advantages and disadvantages than have been presented here. The only way to be sure of which method is the best for you in your unique situation is to talk to an experienced Medicaid planning attorney.
Do You Need Help With A Transfer? Or Have Questions? Call Us.
If you would like help in completing a transfer of real property or have questions about the process, we can help. We are the experienced elder law lawyers at Enea, Scanlan & Sirignano, LLP: 914-269-2367. Or complete the online form.