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Should Parents Transfer Their Home to Their Son?

  • August 27th, 2013
Q
Son put $150,000 of renovations into home of his parents . Home is now valued at $875,000. A year ago, parents changed the deed to the house so it's owned by the parents and the son jointly with rights of survivorship. How would Medicaid handle this? Wouldn't it make sense to transfer outright to son now to start five-year look back?
A

Perhaps, but everyone may be better off using a trust. As you suggest, a transfer of the home to the son will cause five years of ineligibility for Medicaid benefits for both parents. Depending on their health and other resources, this may or may not be a risk they should take. A transfer outright to the son has several drawbacks, including the following: The house would then be subject to any claim should the son be sued or divorced or pass away. In addition, when the son sold the house he would have to pay tax on the capital gains which would be determined based on the difference between the parents' purchase price, plus the value of improvements to property, and the son's selling price. These risks can be prevented by transferring the house to a properly-drafted irrevocable trust. The trust would protect the house for the parents (and the son and his family as well) and bring the son a "step-up" in basis upon the parents' death, reducing or eliminating any tax on capital gain. These issues are complicated and the right answer depends on everyone's circumstances. These decisions must be made with the assistance of a qualified elder law attorney.

Local Elder Law Attorneys in Ashburn, VA

Evan Farr

Farr Law Firm
Fairfax, VA

William Fralin

The Estate Planning & Elder Law Firm PC
Bethesda, MD

Loretta Williams

Hale Ball Carlson Baumgartner Murphy PLC
Fairfax, VA


Last Modified: 08/27/2013

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