Many parents want to believe that their children would never kick them out of their own home. However, the sad reality is that this has been the subject of more than one lawsuit. As a recent article explains, if you are considering gifting your home to your child or children, it is important to consider that possibility and other consequences.
First, the gift of a home is often a taxable gift. If a parent signs a deed gifting the house to their children, he or she should file a gift tax return as well. If this gift tax return is not filed, the parent may lose the ability to claim an exemption from the gift tax and may owe taxes on the transaction.
Additionally, gifting a house to children allows them to sell the house out from under the parent. The children can attempt to send the parent to a nursing home or simply evict the parent altogether.
Finally, gifting a home can have serious implications as far as Medicaid is concerned. Medicaid is a need-based program that employs a look-back provision of five years. Therefore, if a home is gifted within the five year period before a parent applies for Medicaid, the value of the home is considered in the parent’s assets. Therefore, depending on the value of the home, the gift could make the parent ineligible for Medicaid benefits.
Often, the ideal scenario involves a system whereby the value of the home is gifted, but the parent is permitted to live in the home for as long as they like or for a certain period of time. Parents should consider using a combination of life estates and proper trusts to achieve these goals.