| It is certainly possible for a parent to sign a deed | | | | period." The length of the penalty period depends on |
| transferring complete title of the parent's home to a | | | | the value of your house. The formula the states use is |
| child. However, the parent should be very sure he or | | | | this: amount of gift [divided by] penalty divisor = # of |
| she understands the ramifications of signing such a | | | | months penalty. The "penalty divisor" is a figure set by |
| deed. | | | | each state, roughly equivalent to the average cost of |
| First of all, this is a taxable gift. However, in most | | | | a nursing home in your state. |
| states there is no state gift tax to worry about, and if | | | | Example: You deed your house worth $150,000 when |
| your total gifts during life will never exceed $1 million, | | | | your state's "penalty divisor" is $5,000. $150,000/$5,000 |
| you'll have no federal gift tax to worry about, either. | | | | = 30. Thus, if you applied for Medicaid the next day--or |
| Second, and more importantly, you no longer own the | | | | anytime prior to five years from now--you would be |
| house. That means that you're at the mercy of your | | | | disqualified for the next 30 months. The only way |
| child who now owns it. But you're not worried about | | | | around that is if you waited at least 5 years and then |
| your child kicking you out, you say? That's not | | | | applied for Medicaid. At that point, the gift of the house |
| necessarily the issue. What you should be concerned | | | | would be ignored, since it is outside of the 5-year |
| about is if your child gets sued because of a business | | | | "lookback" period. |
| deal gone bad or a car crash where the injuries | | | | If in the above example your house were worth |
| exceed your child's auto insurance policy limits. You | | | | $350,000, the penalty period increases to 70 months! |
| should also be concerned if your child gets divorced, | | | | Of course, in that case, you would definitely want to |
| with the divorce rate being as high as it is. You see, | | | | wait to apply for Medicaid until after the expiration of |
| although even after you've signed the deed you may | | | | the 5-year lookback period. If for some reason you |
| still think of your home as "your" house, it is now really | | | | forgot and actually did apply before the 5 years were |
| an asset of your child's, and those creditors will have | | | | up, you would be faced with a 70-month penalty |
| no problem foreclosing on "your" house and booting | | | | period. There is no upper limit to the length of the |
| you out. | | | | penalty. |
| Third, there is the impact on Medicaid eligibility. If you or | | | | There are exceptions to the above rule that allow a |
| your spouse deed your home to one or more of your | | | | transfer of the house without it causing a penalty. |
| children, that transfer will cause a period of | | | | These exceptions will be discussed in future blogs. |
| disqualification from Medicaid. This is called a "penalty | | | | Stay tuned! |