Deed to Children or Trust – Options for Transferring the Home


Many people consider transferring their home as part of the estate and/or long term care planning. When should the choice be transfer by deed to the children (with or without a reserved life estate) and when is the transfer to an irrevocable trust the better option? The short answer to the question is that the trust is almost always the better choice.

First of all, the most common reason people think about transferring their home is because they are concerned that they might have to go to a nursing home. They realize that the cost of care in a nursing home is very high, and they might use up all their money. Then they would have to apply for Medicaid, which might place a lien on the home for the money they pay to the nursing home. Because nursing home care is so expensive, the lien may be more than the value of the property. The outcome is that the property is “lost.”

Many people think that transferring the property to the children is a good way to avoid losing their home. However, there are a number or potential problems with that approach, such as:

  1. Loss of the STAR and other real property tax exemptions if a life estate is not retained.
  2. Income tax liability to the children if the property is sold during the parent’s lifetime.
  3. Medicaid “problems” if the property is sold during the parent’s lifetime.
  4. Children’s difficulties such as creditor problems, bankruptcy, divorce, and disability may result in claims against the property.
  5. If the parent has retained a life estate and later requires Medicaid, the county will have a claim against the property up to the amount paid to the nursing home.

These “problems” are not unusual and we see them frequently in representing clients. When they occur, the loss of value to the family can be thousands of dollars.

A properly drafted Trust can avoid all of the potential problems described above.

  1. The parents can enjoy life use of the property and retain their STAR exemption.
  2. If the property is sold during the parent’s lifetime, for income tax purposes the sale will be treated as though the parents sold the home, and there will be almost always be no income tax to pay.
  3. None of the proceeds of sale will be counted toward the parent’s Medicaid eligibility.
  4. If a child beneficiary has any sort of financial setback, it will not affect the property.
  5. And, if a parent does receive Medicaid, the county will have no claim against the property or the Trust at the death of the parent.

Comparing the two options for protecting the home it is almost always advantageous to avoid transferring the property to the children, and use a properly drafted Trust.

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