A good way to trigger unintended legal problems
By Carol Sikov Gross
“My mother wants to transfer her house to me,” asks the caller. “How much will it cost?” If your first impulse is to quote your hourly rate or a flat price, think again. There are issues that arise with the gift of a house, such as problems with Medicaid eligibility or capital gain tax imposition when it is sold. Many lawyers never consider these issues, which can cause difficulties for the mother or for her adult child. You should meet with the family to discuss this possible gift before you prepare a deed.
For example, I met with three adult children who had gone to a lawyer for a deed transferring their mother’s $200,000 home to them. Everyone was happy about this gift and thought the home was protected. The lawyer charged less than $500. Six months later, their mother went into a nursing home. She had very few assets and ended up applying for Medicaid. She was determined to be ineligible for Medicaid for approximately 20 months because of the $200,000 gift. Under Pennsylvania’s filial support law, the nursing home could sue the children to help pay the nursing home bills. The children did not want to be sued but did not have the funds to pay the bills.
What should the attorney have done?
The first thing you should do in these situations is to set up a meeting with the family and determine who your client is – the mother or the child.
If the mother is the client, meet with her alone to ask about her home and transferring it to her child. Why does she want to make such a gift? Is she planning to remain living in the home? What other assets does she have? What is her age and health? If she wants to give the house to one of her three children, does she have any concerns about the other two children and her estate plan? Does she have long-term care insurance to help pay for her care? You, as her lawyer, need to determine if the gift of her home is a good decision for her or is it too risky because she might need Medicaid within the next five years.
If the adult child is your client, meet with the child alone to discuss what the transfer of the house may mean. Does the child reside in the house? If the child lives in the house, could the child be considered a caregiver child? A caregiver child is one who has resided with a parent for at least two years, who has provided care and services to the parent and who enabled the parent to remain at home rather than having to go to a nursing home. A transfer of a home to a caregiver child is an exempt transfer for purposes of Medicaid and will not cause a problem with Medicaid eligibility. However, before the home is transferred, it is best to get a letter from the mother’s doctor to support the caregiver child transfer.
If the child does not live in the house, the transfer could affect his or her parent’s eligibility for Medicaid. If the child ends up owning the house, can the child afford to pay the taxes and insurance on the home? What does the child intend to do with the house – move in, rent it or sell it? If the child does not live in the home and sells it, the child might have to pay capital gains tax on its sale. The Pennsylvania inheritance tax rate is only 4.5 percent for a child inheriting a house, which is much less than the capital gains tax rates of 15 or 20 percent.
As for the three adult children with whom I met, they were spared being sued by the nursing home because we transferred the house back to their mother, who was now eligible for Medicaid. The house was an exempt asset of their mother until it was sold.
Remember, when you get the call about gifting a house between a parent and a child, meet with the family and determine if the gift makes sense for your client. Do not simply state a price to prepare a deed, which may cause unanticipated problems. Provide appropriate legal advice.
Carol Sikov Gross is the managing partner of Sikov and Love, P.A. She has been a certified elder law attorney (CELA) through the National Elder Law Foundation as authorized by the Supreme Court of Pennsylvania since 2003 and was admitted as an ACTEC Fellow in 2012.