Monday, May 11, 2009

Giving house to children isn't a wise move

On Mondays, we post a question from a reader and answer in this space. If you have a question you'd like to see us answer, please post it in the comments.

QUESTION: I am in my 70s, and I’d like to put my house in the name of my children so that, if I ever have to go into a nursing home, I won’t be forced to sell it to pay for my care. I have friends who have done this. Does this work? Are there any drawbacks to it?

ANSWER FROM DAN DANFORD: I'm always distrustful about advice from friends in this realm. I hear this stuff all the time and it's the absolute worst place to get information. The times I've tried to confirm this type of stuff have always ended with disappointing results.

Here's the thing. The "nursing home" payment plan is Medicaid, a state-operated plan that provides medical services to indigent people. It kicks in and pays when you've "depleted" your other assets. There are rules about what qualifies as an asset and when the program starts paying. There are "look back" periods for precisely this reason; Medicaid wants to be sure you are really indigent before starting to pay. And they want to be sure that you didn't give everything away just to qualify. So they look at your financial history and may demand assets that were given away to family and friends (or delay paying).

Medicaid is administered on a state-by-state basis, so there are slight variations depending on where you live. Also, amounts allowed to a spouse or the length of look back periods might differ also. Last, and this is a huge factor in my experience, the Medicaid caseworker has some "interpretive" leeway for each situation. So, even within a state, the answers may be different when the circumstances are different.

So, the best thing to do is to establish a "regular pattern of giving" to your family. That way, there are no one-oime massive gifts to raise a red flag for the caseworker. Also, remember that the reason you worked hard and saved all these years is precisely to take care of you when you need it. Another way of saying this is that you likely need the money (or house) more then you children.

Which brings up one last caution. What if you give the house to your kids and they become embroiled in a lawsuit or - heaven forbid - a nasty divorce? Under this "worst case scenario" the house or other asset could end up being unavailable to either you or your children! Careful, careful, careful.

Really, don't listen to your friends for this. Consult a reputable estate planning attorney in your city. A few hundred dollars in fees could accomplish what you want without the guesswork.

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