Some people want to start giving away property to their loved ones during their lifetime rather than waiting until after they are gone. Before you do this, here are three things you must know!
1. Penalties Giving away property within five years of applying for long-term care Medicaid can result in penalties and periods of disqualification if you need skilled nursing home care within the next five years and do not have sufficient long-term care insurance. This is due to the five-year lookback.
2. Capital Gains Tax Giving away real estate to your children by deeding property to them can cause them to pay capital gains tax when the property is sold because gifted property does not get a step-up in basis. The higher your adult child's tax rate, the higher the capital gains taxes. When property is inherited through a will or trust, your children generally get a step-up in basis that minimizes or even eliminates capital gains.
3. Unexpected Expenses In a crisis, will you still have enough to live on if you give property away and your situation changes? What if you need to sell property to pay for long-term care for yourself or a spouse? Relationships with children can change from day to day and month to month. If you think you may need to sell your property to pay for your medical or living expenses, you should not give it to your children. Once deeded over, your children are under no legal obligation to deed it back. I have seen this happen too many times - a parent adds a child to a deed and the child refuses to agree to a sale of the property later when the parent needs money for long-term care.
Above all, don't end up with a do-it-yourself disaster. There are better ways to give your loved ones an inheritance and plan for the unexpected than giving away property before you go. Talk to an elder law attorney today and get the peace of mind that comes from having the right estate plan in place.
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