Will the nursing home take my house?
Remember that for purposes of determining Medicaid eligibility, your house is an exempt asset. This means your home cannot be taken from you while you are alive. However, under some circumstances the state that provides Medicaid benefits may retain the right to place a lien against your home for the value of your care. This type of lien is enforced when the house is sold. Depending upon the value of the benefits you receive, your equity in the house could be lost.
We frequently hear from our clients that they want to give their home to their children but still retain the right to continue living there as long as they want. There are many risks involved with gifting your home to your children including the following:
- If you transfer (gift) your house to the kids it will be counted as a divestment. You will be taking an exempt asset (which the state does not consider when determining Medicaid eligibility), and turning it into a non-exempt asset (one that is subject to a penalty period). While some states allow Medicaid applicants to transfer a non-exempt asset without penalty, most will impose a penalty period on the transfer of the house.
- Your home will now be at risk from the claims of your children’s creditors. Your children’s creditors, divorcing spouses, business debts, and lawsuits can present a bigger danger than the state’s lien.
- Your children may incur capital gains taxes when the house is sold that could have been avoided had they inherited the property from you after your death.
These and other problems can strike those who gift their property away without careful planning.