As life expectancies increase and our population continues to age, many are becoming more concerned about the impact of long-term nursing home costs. Wanting to preserve assets in light of this overwhelming expense, many consider gifting their home (or other assets) as an option. Unfortunately, many potential pitfalls to gifting exist and should be considered carefully. The following are just a few possible issues:
You No Longer Have Control – When you gift an asset it now belongs to the recipient and there is no legal obligation that the recipient return the gift or allow you to use it if circumstances change and you need the assets at a later time. Additionally, the gift may be subject to loss as a result of the recipient’s divorce, bankruptcy or death, among other things.
Tax Consequences – By gifting property during your life, the recipients of the gift do not receive a step-up in basis, as they would if they inherited the gift at your death. Thus, there may be significant capital gains implications for the gift recipients. Furthermore, you will likely lose your Homestead Exemption if gifting real property.
In-Laws - If you gift real property to your children, their spouses will have an immediate dower interest in the real property.
Collateral – You will no longer be able to use the asset for collateral for an equity line of credit or a reverse mortgage.
Homeowner’s Insurance – Cost of insurance will likely increase if real property is gifted because it will likely no longer be owner-occupied.
Medicaid Ineligibility – Most gifts will cause a period of ineligibility for Medicaid. Often, this period of ineligibility is five years. You cannot just gift away your assets and immediately qualify for Medicaid.
Despite these potential pitfalls, there are a number of planning opportunities available to preserve assets. However, given the complexities and nuances of the Medicaid eligibility rules and the potential gifting pitfalls, it is essential to consult with an experienced attorney. If you have questions about Medicaid eligibility and asset preservation, please contact your Stark & Knoll attorney.