Question: I’m an 85 year old female and in good health and live in my own house with my 60 yr old daughter who cares for me. What are my options if I wish to transfer or gift my home to my 2 daughters. My concerns are – Look back period, how would this affect my 60 yr old daughter’s homestead exemption, Gift taxes, etc. Is it possible for my daughters to purchase the house from me and then rent it back to me, and would this affect my Medicaid planning?
Answer: Most states have a look-back period of five years and any gift made in the five-year period prior to applying for Medicaid would put you in a penalty period of ineligibility for Medicaid. This penalty period of ineligibility for Medicaid starts when you are otherwise eligible for Medicaid. The meaning of “otherwise eligible” varies from state to state, but in Illinois this means you have $2,000 or less in assets and you are in a Medicaid facility. You should not make an outright gift or transfer of your home to your daughters. Aside from the penalty period Medicaid will impose, there are consequences in regards to your real estate taxes as well: 1) you will lose your homestead exemption, 2) you will lose your senior exemption and possible senior freeze or deferral of taxes, and 3). you would be transferring your basis in the property to her as a gift rather than giving her a “step-up” in basis at the time of your death. This means, she would have to pay capital gains tax on the property based upon the difference between your original purchase price and the price she sold the home for in the future. For these reasons, I cannot recommend you gift or transfer the property to your daughter or daughters.
As far as Medicaid is concerned, if you sell your property for fair market value to your daughter or another third party, this will not affect your eligibility for Medicaid. Furthermore, this would allow your daughter who resides with you to establish her own homestead exemption. However, if she rents the property back to you this would be rental income to her that she would have to claim on her taxes.
There is a caretaker child exemption in many states which allows the transfer of the home to a child who has cared for their parent without creating a penalty for Medicaid. Illinois is currently in the process of changing all of their Medicaid rules to come into compliance with the Deficit Reduction Act. Under current Illinois rules, transferring the home to a caretaker child is an exempt transfer (PM 07-02-20(b)). To qualify as a caretaker child in Illinois, the rules state, “a person’s child who provided care (either nursing or support) for the person and who was living in the homestead property for at least two years immediately before the date they entered the facility or applied for/received [Medicaid] services.” Under the new proposed rules from Illinois, they initially proposed rules that were hyper-technical and would effectively eliminate the possibility for this exempt transfer to occur. I created and co-chair the Task Force for Senior Fairness with fellow elder law attorney, Diana M. Law, which has worked tirelessly to combat Illinois’s proposed rules in areas we consider to be too harsh, punitive and draconian for our Seniors. One of our wins, is that Illinois has changed their proposed rules in the area of the caretaker child. The rules still contain more criteria to qualify as a caretaker child, but the exemption remains and is now manageable to obtain. Once the new rules are implemented, the caseworker will also need proof of the child’s residence and a doctor’s note stating the applicant would have had to go the nursing home earlier but for the child’s assistance they were able to stay at home.
The best advice I can give you is to see an elder law attorney in your area while you are still healthy who is familiar with Medicaid, Real Estate and Personal Care Contracts so you can establish in writing that your daughter is providing care for you.
NOTE: The information provided above is not intended to be nor should be relied upon as legal advice. Peck Bloom, LLC is located in the State of Illinois and the attorneys are only licensed to practice law in Illinois and Florida. You should consult a qualified attorney licensed in your state regarding these matters.
To locate experts in your state who can help you with this elder care matter, go to: www.ElderCareMatters.com/statechapters.htm
Kerry R. Peck, Managing Partner
Peck Bloom, LLC
Chicago, Illinois 60603
Member of the national ElderCare Matters Alliance, Illinois chapter