Legal-Ease: Nursing home planning — give house to the kids?

Our home is often our most valuable asset. Obviously, we invest a lot of money in purchasing or building our homes and often continue to make improvements during our lives.

Correspondingly, one of the biggest expenses for which we may have to someday pay could be long-term care, which includes nursing home care, assisted living or in-home medical care.

Government programs commonly called institutional Medicaid, assisted living waiver or passport can shift the financial responsibility to pay for long-term care from the patient to the government.

Most people are aware that the two big requirements to be eligible for institutional Medicaid are (a) have a financial net worth of less than $2,000 and (b) not have given away any gifts to anyone to become that poor.

The confluence of these circumstances can lead some people to want to be extra proactive in protecting their most valuable asset (their home) as soon as possible to avoid having to foot the tab for their biggest financial expense (long-term care/nursing home).

In principle, an early gift of a valuable asset (like a home) to someone else can be handy if the giver needs long-term care more than five years after the gift.

There is virtually never a gift tax owed by the giver or the receiver of a gifted home.

However, giving the house to the kids could lead to capital gains taxes for the kids if the kids eventually sell the house. If the parents own a house and use it as their primary residence, the parents can usually gain up to $250,000 of sales proceeds (beyond the house’s initial purchase price) tax-free, due to the house being the primary residence of the owners or sellers.

Of course, if the parents give the house to the kids and the kids sell the house when the kids do not use the house as their primary residence, the kids would likely have “capital gains,” and corresponding tax, of the house sale price minus the parents’ initial purchase price.

Although unexpected and sad, some kids evict parents. Thus, parents who gift their homes to their kids should have a written gifting agreement that guarantees the parents’ right to live in the house rent-free for the rest of the parents’ lives.

The gifting agreement should make it clear that the right to live in the house is “personal” to the parents and cannot be transferred. This avoids Medicaid arguing that the parents should rent the house out to third parties if or when the parents are in the nursing home.

In Ohio, if kids own a house, the kids’ spouses will be required to sign off on any home equity loans, sales or easements that affect the home. The challenge of involving so many people is often overcome by using an LLC to own the home with the kids owning the LLC.

Esteemed attorney Clyde A. Schroeder (no relation to me) likely says it best: be careful putting on your pajamas too early before you are ready to go to bed.

Lee R. Schroeder is an Ohio licensed attorney at Schroeder Law LLC in Putnam County. He limits his practice to business, real estate, estate planning and agriculture issues in northwest Ohio. He can be reached at [email protected] or at 419-659-2058. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.