Many older adults are concerned about protecting their assets from the cost of long-term care that they might potentially need in the future. Sometimes they consider placing their homes in their children’s names thinking that will protect the house from MassHealth. MassHealth (known as Medicaid in other states) is a joint federal/state assistance program designed to pay for long-term care for individuals that meet certain income and asset guidelines. To qualify for MassHealth a person’s total resources and income must fall below some fairly stringent eligibility limits, and there are also restrictions on how they can transfer assets.
There are some negative consequences of putting your home in your adult child’s name that you should know about if you’re considering putting your principal residence in your adult child’s name.
- Your child’s creditors could go after the house.
If your child is sued for any reason, the creditor can come after the house since it’s an asset your child owns. If your adult child is responsible for a serious accident, the victim could place a lien against the house and even possibly force the sale of the house. If your child runs into trouble with debt or is somehow subject to a collection action, you house could be in jeopardy. If your child gets divorced, that house would be part of the divorce proceedings when it comes to dividing the marital assets.
- There may be tax consequences if the house is sold during your lifetime.
When you sell a property for more than you paid, it’s called a capital gain. The IRS taxes capital gains, however, there’s a tax break available to homeowners when they sell their house if the owners and the home fit certain criteria. Transferring your principal residence could disqualify you from some or all of the capital gains tax exclusion.
- Your child could get hit by capital gains taxes in the future.
Putting your home in your adult child’s name makes your child the owner of the house now. If your child then sells it in fifteen years, they will owe taxes on the appreciation since you first bought the property. However, if you set up a trust with the house in it and your child takes ownership of the house after you pass, they could avoid those taxes.
- If your child predeceases you, the house is part of their estate.
That means it will be distributed according to your child’s will or trust, and it will be an estate asset that creditors can go after to recover your child’s debts.
- It’s no longer your house.
If you put the house in your adult child’s name, it’s no longer your house. That means if your child wants to sell it, you can’t stop them. You also don’t have the right to take out a home equity line on the house or a reverse mortgage if you find yourself in need of money.
If you’re thinking about putting your home in your adult child’s name, there’s a lot to consider. As a Massachusetts estate planning attorney who has experience in protecting assets from MassHealth, I can discuss all the pros and cons of transferring ownership of your house as well as multiple ways to protect your assets. Call us today at 617.299.6976 or contact us using this online form to schedule a confidential, no-cost consultation with us.