Reasons to Not Transfer Your House
Medicaid
It may sound like a good idea to transfer your house to your adult kids, so that you can qualify for medicaid, but it could end of costing you medicaid benefits that you may would have qualified for.
Medicaid is the government program that pays for health care and nursing home bills for the indigent. However, gifts and transfers made within five years of applying for Medicaid can lead to a penalty period and could disqualify or delay you from receiving medicaid benefits.
Creditors & Divorce
Transferring your home to your adult kids can expose you to their financial problems. Their creditors could file liens on your home, and depending on state law, creditors could force the sale of your home to get their money. Likewise in a divorce, the house could become an asset that must be divided.
Taxes, Lawsuits & Bankruptcy
Transferring your house to your kids while you’re alive may result in a big unnecessary tax bill for your kids, and it puts your house at risk if your kids get sued or file for bankruptcy.
When transferring your house to your adult kids, can potentially create capital gain taxes, as follows:
Let’s say that you paid $150,000 for your home. Once you reach an age where you are planning for retirement, social security and medicaid, your house is worth $250,000. The difference between your purchase price and what the house would be worth is called capital gain. In this case the capital gain amount is $100,000 ($250,000 – $150,000).
If you transfer the house to your kids, they would have to pay taxes on $100,000. However, if you kids inherited the house, there would be no taxes.
A Better Way to Transfer Your House
Two ways to consider transferring your house to your adult kids and avoid probate:
-1- Transfer on Death Deeds: allow people to leave their beneficiaries their house without having to go through probate.
-2- Living Trust: allows people to setup a revocable or irrevocable living trust, and you will then move / title the house into the trust. The living trust document states who gets the house upon your death.
