Transfers of Assets (c)

Rajiv Nagaich & Andrea T. Lee

Attorneys & Counselors at Law

Sometimes senior citizens attempt to sell or give away their property either to avoid probate or in the hope to make it easier on family members when they are gone. However, every transfer of assets, whether the transfer be of cash or real property (like a home), can have unintended consequences to both you and the recipient. Often, a recipient will promise to allow you to stay in home they received, while it sounds like a wonderful idea to transfer assets while you are alive, there are some potential risks everyone should consider before giving away property.

What are the Risks related to asset transfers?

1) The recipient could “lose” the property or assets, unintentionally leaving you homeless and or without funds. Often, a gift recipient will promise to allow their parent to live on the property so long as the parent wishes. However, even if the recipient of the gift would never make you move out, or would never spend the assets they are holding for you, there are still risks. For example, the recipient could be sued, divorced or go bankrupt in a bad business deal. Since the recipient now owns the house or other assets, those creditors could attach “your” property and force a sale, leaving you out on the street.

2) You may not be able to get it back. Once you give the property away, it no longer belongs to you, and the recipient does NOT have to give it back, even if you want them to.

3) If you transfer your house, you can be forced to move. Sometimes, a senior will give property to a child, but hopes to live in the property for the rest of his or her life. However, unless you keep a “life estate” in the property, the recipient can force you to move out at any time.

4) The property taxes may increase. If you pay lower property taxes because you are a senior citizen or disabled, the taxes might go up.

5) There may be tax consequences to the recipient. You may plan on transferring an asset, such as your house or some money, to one child, with the understanding that that child will share the asset with his or her siblings when you pass away. However, when that child shares the house or money with his or her siblings, he or she may use a portion of their gift tax exemption, creating unintended tax consequences.

6) Transferring assets could prevent you from receiving Medicaid and other forms of financial and medical assistance. See below for more details.

IF I WANT TO TRANSFER REAL PROPERTY, HOW SHOULD I DO IT?

1) What is a Quit Claim Deed? Should you elect to transfer property to someone else, the most common way to transfer real property is by using a Quit Claim Deed. A Quit Claim Deed is a deed where you makes no guarantee or promises that the property is free of debt or other encumbrances.

2) What is a Life Estate? If you want to transfer property, but want to keep the right to live on the property, then you can quit claim the property, but specifically keep a “life estate,” thereby keeping the right to live on the property until you die.

3) Are there any downfalls to keeping a Life Estate? The Department of Social and Health Services places a value on life estates, so if you keep a life estate in property, that will affect your Medicaid eligibility.

Effect on Medicaid Eligibility

Congress does not want you to move into a nursing home on Monday, give all your money and property to your children (or whomever) on Tuesday, and qualify for Medicaid on Wednesday. So, it has imposed a penalty on people who transfer assets without receiving fair value in return. A person applying for Long Term Care Medicaid coverage must tell the Department of Social and Health Service about all transfers of assets he or she made during the 60 month period prior to applying for Medicaid. DSHS then determines whether the Medicaid applicant transferred any assets for less than fair market value during this period, and how the transfer affects your eligibility for Medicaid.

If you transferred property and need Medicaid within 60 months, you could be denied Medicaid if the transfer does not meet one of the special circumstances. You are allowed to make the following transfers of property without penalty:

1) Transfer of property to your Spouse.

2) Transfer real property to your child, IF your child has lived with you for at least 2 years in order to care for you

3) Transfer property to your disabled child.

4) Transfer property to your sibling who already owns a portion of the property and who has lived with you.

5) Transfer property for reasons other than to qualify for Medicaid, though the presumption is that all transfers made within 60 months of application are done for the purposes of qualifying for Medicaid. This is a significant hurdle to overcome for an aged person and generally will result in the imposition of a penalty period during which the applicant will not be eligible to receive benefits.

If you transfer property, and it doesn’t meet one of the exceptions listed above, then you could be denied Medicaid unless the property is transferred back to you.