There may be situations where you’d like to transfer your home’s ownership to another person in your family. Perhaps you have a sibling who is living with and taking care of you while you are facing an end of life situation. Whatever the reason, it is important to look at your goals and the possible solutions before making a decision.
There are many complicated Federal and Texas state laws that can come into play and easily affect your life and the lives of your loved ones if you transfer the ownership of your home to a family member. Before taking the plunge and signing over your home, let’s look at the possible complications with home deed transfer of ownership.
If you transfer your home or assets during the 5 years before applying for Medicaid help, the state may declare you ineligible for benefits.
According to Texas.gov Medicaid Laws, “Giving away resources for no compensation, or refusing to accept income, or reducing income you could receive before moving into a nursing home may result in:
- A penalty against you for not paying for nursing facility or ICF/IID facility services when you were able to do so; or
- A decision by the state that you are ineligible for waiver program services or state supported living center services.
The state may “look back” up to 60 months before you applied for a nursing home, ICF/IID or waiver services to determine when your income was reduced and resources were transferred.”
If you transfer ownership of your home and lose Medicaid eligibility, how will you pay for your own medical care if you have no home equity to help cover your costs? If you need Medicaid or SSI to help you through your end of life years, you must be careful how you handle your assets. To work around losing your possible benefits, consider placing your assets, including real property, into a Trust managed by someone else.
LadyBird Deeds & Medicaid Estate Recovery
According to texaslawhelp.org, “Lady Bird Deeds are often used in long-term care planning. It gives you the right to live in, sell, or mortgage the property while you’re alive and gives the beneficiaries on the deed the right to receive the property (if you still own it) when you die. The transfer is contingent on whether you still own the property.”
With a LadyBird Deed, your estate may have to pay back Medicaid for the benefits you received while you were alive. According to AARP.com, “At the time of a Medicaid beneficiary’s death, the state becomes a creditor in probate court. … Heirs receive their inheritance only after these priority claims are paid.”
Ways to Avoid Paying Back Medicaid
According to Texas.gov, “the state will not ask for money when:
- There is a spouse who is still alive.
- There is a child under 21 years of age.
- There is a child of any age who is blind or permanently and totally disabled under Social Security requirements.
- The value of the estate is $10,000 or less.
- The amount of Medicaid costs is $3,000 or less.
- There is an unmarried adult child who lived full-time in the Medicaid person’s home for at least one year before this person died.
- The cost of selling the property is more than the property is worth.
- Also, the state will not ask for money when this would cause an undue hardship for the heirs.
Partial Transfer of Deed
One thing to understand is that there are types of agreements where you sign over partial ownership of your home but you still live in your house. These types of agreements come with risks to you. You could lose the right to live in the house.
It is understandable that you might want to sign a Life Estate Deed (sharing ownership) with a caregiver relative, counting on them inheriting the property completely after you pass away, but be aware of the possible consequences of this arrangement.
What If The New Partial Owner has a:
- Desire to sell the house
- Lack of care for the house
- A debt settlement owed
- Court settlement to pay
With these types of partial transfers where you stay in the house, you lose the right to make any decisions on your own. What if you have a disagreement with the new partial owner? What if sometime later, you both agree to sell the home? If you have not lived in the home for 2 of the last 5 years you will now owe capital gains taxes on the sale of your home.
According to Rocketmortgage.com, “your capital gains tax rate can be 0%, 15% or 20% depending on your income and your tax filing status. Certain assets are taxed at different rates depending on what they are and the situation. Almost any property you own is subject to capital gains tax if you sell it for more than the original purchase price.”
Make a Will
No Tax Penalties
Leaving your home in your will allows you to give up to $11.58 million per individual without tax penalties (in 2020). A tax benefit called “stepping up the basis” means that your family member does not pay capital gains taxes on the amount your house has increased in value over the years. They only pay taxes if the basis (the value of the house) increases while they own the property.
No Probate Court
Leaving your house in your will is also a good idea because it will pass immediately to your beneficiaries upon your death. Your heirs avoid probate and the expenses involved. According to TX law, you can draw up a “Transfer on Death Deed” naming a beneficiary to own that real property after you die and it will not need to go through probate court.
Transfer On Death Deed
In TX, it became legal in 2015 to use a Transfer on Death (TOD) deed which immediately gives the property to whoever you designate. These titles are straightforward and easy to file with the help of your attorney when planning your estate. They can be part of a will.
In a TOD, the property simply moves hands by transferring the name on the deed immediately after your death without having to go through probate. Probate can last months or years depending on how you have set up your estate plan so a TOD is a good way to avoid probate headaches for your named heirs.
Only continue with transferring your deed if:
- You are not concerned about trying to stay in your house
- You are not interested in selling your house later
- You don’t want any control over your house or who lives there
- You don’t mind any taxes you may incur by giving away a house
- You’re not concerned about Medicaid ineligibility
- Medicaid Recovery after you die will not be a problem
Process of Transfer of Deed:
- Find the actual deed to the property
- Create a new deed with yours and your family member’s notarized signature
- File the documents at the Real Property Department of your County Clerk’s Office.
Find Expert Answers
Whatever you decide to do, think about the long term consequences to your actions. The best way to understand and apply the law in Texas is to consult with a knowledgeable Estate Planning Attorney. An experienced attorney can help you see the potholes in the road ahead that you may not be able to see. Laws regarding Medicaid, Gift taxes, Inheritances, and Housing taxes are constantly changing. You need to know and understand the latest changes to make a wise decision about signing away your home.
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