Don't Gift Your House To Your Children
A common financial mistake that I see people make when attempting to protect their house from a long-term care event is gifting their house to their children. While you may be successful at protecting the house from a Medicaid spend-down situation, you will also inadvertently be handing your children a huge tax liability after you pass away. A tax liability, that with proper planning, could be avoided entirely. Video: How To Protect Asset From The Nursing Home: • How To Protect Assets From The Nursing Home Video: Should You Put Your House In A Trust? • Should You Put Your House In A Trust? Contact Michael Ruger with Questions: 518-477-6686 or [email protected] Visit our website: https://www.greenbushfinancial.com/ Subscribe to our channel for more financial planning tips: / @greenbushfinancialgroup ---------------------------------- 0:00 Intro 0:45 Asset Protection Strategy 2:00 Tax Gifting Rules 4:00 Why Should You Set Up a Trust? 6:00 Tax Implications ----------------------------------- Frequently Asked Questions (FAQs): Why is gifting your house to your children a mistake for Medicaid planning? While gifting your home can protect it from Medicaid’s spend-down rules, it also transfers your cost basis to your children. When they sell the property after your death, they may owe significant capital gains taxes on the home’s appreciation—liability that could have been avoided with proper planning. What is Medicaid’s five-year look-back rule? Medicaid reviews all asset transfers made within five years prior to applying for benefits. If you gifted your home or other assets during that time, Medicaid may count those transfers against you, delaying eligibility or subjecting the home to a lien for care costs. How does a Medicaid Trust protect your home and reduce taxes? A Grantor Irrevocable Trust (commonly called a Medicaid Trust) allows you to transfer ownership of your home while retaining the right to live in it. When you pass away, the home passes through your estate and receives a step-up in cost basis, eliminating capital gains taxes for your heirs while protecting the home from Medicaid recovery. What is a step-up in cost basis? A step-up in cost basis resets the home’s taxable value to its fair market value on the date of your death. For example, if you bought your home for $100,000 and it’s worth $500,000 when you die, your heirs’ cost basis becomes $500,000—allowing them to sell it with little or no tax owed. Can you still use the home sale exclusion with a Medicaid Trust? Yes. Because a Grantor Irrevocable Trust maintains your tax identity, you retain the $250,000 (single) or $500,000 (married) exclusion on the sale of your primary residence. This benefit is lost if you transfer ownership directly to your children. What does it cost to set up a Medicaid Trust? Setting up a Medicaid Trust typically costs between $2,000 and $10,000, depending on the attorney and complexity of your estate. While this is an upfront expense, it often saves families tens of thousands of dollars in future tax liability and asset protection. Can the trust sell or hold proceeds from the home? Yes. If the home is sold, the proceeds can remain in the trust or be used to purchase another home, keeping the funds protected under the five-year Medicaid look-back rule. The key is ensuring the sale proceeds never leave the trust’s ownership. #medicaidassetprotectiontrust #greenbushfinancial #taxplanning
