Under the long-term care Medicaid Rules (which helps pay for long-term care costs), there is normally a five year “look back” period whereby the state can penalize an applicant from Medicaid eligibility if there is an uncompensated transfer within five years from when one applies for long-term care Medicaid (see our October Newsletter regarding 10 exceptions to the Medicaid transfer penalty rules). There are also specific exceptions if one transfers their homestead from being a penalized event including the following:
- Transfer to the spouse who lives in the home.
- Transfer to a child under age 21 or a child of any age if they are disabled as determined by the Social Security Administration.
- Transfers to a sibling who has an equity interest in the home and has lived there for at least one year before the person’s institutionalization.
- Transfer to a son or daughter (even if not disabled) who lived in the home for at least two years before the person’s institutionalization and provided care that prevented institutionalization as substantiated by the person’s attending doctor or professional social worker familiar with the case.
- Transfers by either a transfer on death deed or enhanced life estate deed (also known as a Ladybird Deed) where the person maintains control of the property during their lifetime including the power to sell property and retain all proceeds assuming the Medicaid applicant signs a statement that they intend to return home.
Of course, prior to making any transfer of the home, one should consider tax issues such as capital gains taxes, potential loss of step-up in basis, loss of property tax exemptions, possible gift tax issues, loss of creditor protection, etc.