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Advanced Estate Planning: Understanding Medical Assistance

Effects on Medical Assistance Eligibility

More advice on how to avoid potential pitfalls of putting your children on the title to your real estate. We will help you. Thatcher Law Firm will help you gain clarity on what may seem lost in fog.

If a parent gives his home (or a partial interest in it) to his children, and is not selling it for fair market value, Medical Assistance (MA) will consider this to be an improper transfer and won’t pay for the parent’s long term care (nursing home) during a period of ineligibility. The length of this period varies depending on the amount of the gift. MA has a five year (60 month) lookback period for gifts which starts when the gift is made. Any application for MA made before the expiration of the 60 month period will trigger the ineligibility rules. During the period of ineligibility, the parent must pay for her own care. This means that an application for Medicaid should be avoided for at least sixty (60) full months after the date if the gift.

All Gifts made during the five-year lookback period count in this calculation. So if a parent gives his $250,000 house to his children, and sometime during the next few years gives a grandchild $20,000 to help with unexpected financial problems, Medicaid will use $270,000 in calculating his ineligibility.

If the home is owned jointly with other owners who reuse to sell it, the home is considered unavailable and is not considered as an asset of the MA applicant. DHS Health Care Programs Manual 19.15.05. However, if the parent has received MA benefits, the county will have a lien against the home and will have to be reimbursed when the home is sold. Minn. Stat. §256B.15.

 

Tax Consequences

Homestead Status for Real Estate Taxes - If a parent lives in the property, she can continue receiving the homestead property tax exemption if she is the owner or a co-owner, or even if she is a relative of the owner (Minn. Stat. §273.124 (subd. 1(c)). “Relative” includes the following persons whether related by blood or marriage: parent, step-parent, child, step-child, grandparent, grandchild, brother, sister, uncle, aunt, nephew and niece. However, neither the related occupant nor the owner of the property may claim a property tax refund under Minn. Stat. Chapter 290A for a homestead occupied by a relative.

Tax statements are sent to each address listed at the bottom of the Deed. All co-owners can be listed so each will receive a copy. The owners can decide among themselves who will pay the property taxes or how they will divide it up. However, in the case of a life estate, the holder of a life estate is legally responsible for paying the taxes, not the remainderman.

Gift Tax - There are gift tax consequences if a person gives property worth more than the annual exclusion amount to any one person in any one year ($13,000 in 2011). No gift tax will be due at that time, but a gift tax return must be filed. Gift tax will be due at the person’s death if his estate is large enough. A gift of a remainder interest (when the parent retains a life estate) is a gift of a future interest which is not eligible for the gift tax annual exclusion.


Income Tax

Basis - If the house is gifted to the children without any retained interest (life estate), the children will have a carryover of tax basis, which means that they would have to pay capital gains tax on the increase in value from the time the parent bought it until it was sold. However, if the children inherit the property at the parent’s death, they would have a stepped up basis, which means they only have to pay capital gains tax on the increase in value from the date to death to the date of sale. 26 USC §1014. Depending on how much the property has increased in value while the parent has owned it (the amount of the gain), the gift may result in a large amount of capital gains tax due.


Income Tax Exclusion – In some circumstances, a homeowner may exclude $250,000 of gain upon the sale of his homestead. 26 USC §121(a). However, co-owners who do not live in the home are not be eligible for the income tax exclusion, and will have to pay capital gains tax on their share of the gain.

 

Find more information on Health Care for the Edlerly from Stanford.

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