Both approaches have their benefits and drawbacks, but we generally prefer the use of a trust. The reason for this is that a trust protects the house and the parents in case the child or children run into financial difficulties whether due to the loss of a job, illness, a lawsuit, bankruptcy or a divorce. Also, the parents are protected from the children deciding it's time for the parents to move out, for whatever reason, or if the child passes away first and the house goes to an in-law or grandchildren. Finally, there are tax benefits for the children if a trust is used as opposed to an outright gift. The advantages of a gift over a trust are its simplicity and the fact that it's easier to reverse. Either an outright gift or a trust will cause the parents to be ineligible for Medicaid during the subsequent five years (a reason to act sooner rather than later), but a gift is easier to reverse if a parent does move to a nursing home and require Medicaid during that five-year penalty period. I'd recommend consulting with an elder law attorney to determine what makes the most sense in your parents' situation.
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