[From time to time, it’s good to readdress important topics and so we will rerun past articles. With the real estate market heating up, it was time to bring back an article on reasons not to gift property to your children.]
With the rising cost of long-term care, families are starting to look more and more at planning for Medicaid to handle those costs. Unfortunately, this has led to a lot of ad hoc transfers based on folk remedies that rarely work out exactly the way they were intended. One of the biggest and most costly mistakes is outright transferring a house to a child or children when other techniques would be much more effective. There are many reasons why an outright gift is not necessarily the best technique, but here are three of the biggest:
- Real Estate is Placed in Jeopardy: Unfortunately, simple solutions can sometimes lead to the biggest problems. When gifting a house to a child, the house becomes owned by the child and therefore is subject to creditors, divorcing spouses, and lawsuits. Someone once told me of how his parents gifted their home to his wife in order to avoid having a Medicaid lien placed on it should they need long-term care. They didn’t transfer it to their son because he had a business and some potential lawsuit and creditor issues, so gifting it to his wife would avoid those vulnerabilities. They didn’t count on their daughter-in-law leaving their son, and then turning around and kicking them out of their own home. The right kind of Irrevocable Property Trust could have taken the house out of their hands for Medicaid Planning purposes and placed its management in the hands of their son, but at the same time, it would keep the house protected from their son’s personal or business liabilities.