A home is typically the most important and valuable asset people own, so, deciding “what to do about the house” is often crucial in any estate plan.
Here are some questions that I get asked and things for you to consider regarding your home:
1. CAN YOU STILL QUALIFY, IF YOU MEET THE INCOME AND ASSET REQUIREMENTS, FOR MEDICAID AND KEEP YOUR HOMESTEAD?
Yes, you can own a home and qualify for Medicaid. No, Medicaid does not automatically “take your house.”
I have been handling estates for almost 10 years, and I have never had a situation where Medicaid “took someone’s house” or forced a sale after someone had died. Medicaid should get notice (as a creditor) of the probate proceeding, but the house usually qualifies for the homestead exemption from creditors.
So, you should not deed away your house to qualify for, or save your house from, Medicaid. In fact, transferring assets without compensation within five years may disqualify you from receiving Medicaid.
2. IF YOU ALLOW SOMEONE TO INHERIT YOUR HOUSE WHEN YOU PASS AWAY, WILL THAT PERSON TAKE YOUR TAX BASIS IN THE HOUSE AT THE TIME OF YOUR DEATH?
If you deed your house to someone, as opposed to them inheriting it, and your house has greatly appreciated in value, that person may face capital gains tax if they do not homestead the property and live in it for two years.
Ask a CPA for more tax information if you feel that your property has greatly increased in value and your loved ones may face a capital-gains-tax situation.
3. WILL A TRANSFER-ON-DEATH DEED PREVENT THE NEED FOR PROBATING THE HOUSE?
It depends. If you prepare a transfer-on-death deed to one or multiple people and they intend to sell the house right away, as opposed to living in it and filing for homestead, a title company may insist that there is a proceeding (such as probate) to terminate the creditors’ rights.
The transfer-on-death deed does not terminate a creditor’s rights, and therefore, many title companies want a probate proceeding conducted if the desire is to sell the house quickly after the decedent’s death.
The statute of limitations for creditors to file claims is three years and 90 days, so the alternative is to wait that long before selling the property.
As everyone faces a different situation, it is best to consult a professional if you have specific questions, and they will be happy to discuss your situation to help decide the best estate plan for you.