Should You Gift Your Home to Family Before You Die?


Kitchen Tune-Up

Most of us plan ahead for future expectations and, hopefully, at retirement, we are standing on solid financial ground. However, at times people forget about their most valuable asset—their homes. Well-meaning friends or family members may recommend that loved ones go ahead and “gift” their home to the children. For several reasons, this is a bad idea.


First, if you give your home away during your lifetime, you give it to the recipient at your original tax cost basis. This means that when they sell it, they may have to pay capital gains taxes. For example, if you purchased your home 30 years ago at $50,000 and your children sold it for $100,000 they would possibly owe capital gains tax on $50,000. Consequently, you may be giving your children a very large tax problem by “gifting” your home to them while you are alive.


Second, some people plan to “gift” their home and continue to live there until death. This is done with the good intention of sparing their loved ones with the often unpleasant process of probate. That may sound like a good plan, but it creates yet another financial problem for the homeowner. The original homeowner loses homestead exemption. Since they are no longer the titleholders, even though they continue to live there they are disqualified from that annual exemption. Also, many retired homeowners are over age sixty-five, and in addition to the basic homestead exemption, they also lose their “over sixty-five” homestead credit. This results in an increase in taxes at a time when income may have decreased due to retirement.


Third, when you transfer the title of your home into the names of your children, you have just given them an asset. As with most assets, there is always a danger of losing that asset to creditors. The loss could come in the form of a divorce, liability in an automobile accident, or it could be caused by bankruptcy. Any of these situations could cause what was once your home to be lost to their creditors—and if you are still living in the home, you either have to move or pay their creditors. The convenience is not worth the risk.


Fourth, many people “gift” their homes as part of a plan to qualify for long-term nursing home care. They are trying to protect their home from being lost to that expense. While that may be good in theory, without solid advice from an experienced elder law professional, they will probably make a huge mistake.


Further, with Medicaid planning, penalties for giving away assets do not immediately begin upon gifting of the asset. Rather, the penalty period for Medicaid purposes in the nursing home starts to run from the time you are in the nursing home, apply for Medicaid, and are otherwise qualified, but for the gift. That means that you have $4,000 (the maximum qualifying amount for a single person), you are in the nursing home, and the penalty period generated by giving away your house starts to run at that time. The question is: How will you pay for the nursing home during the penalty period since you only have a total of $4,000 to your name? That’s a big problem.


Just giving away your home is frequently a very bad idea. There are other ways to accomplish this same transfer without the negative results, and it is readily done. Be prudent in your planning. Seek the counsel of an experienced elder law attorney. After all, retirement should be as easy and stress-free as possible. These should be the very best years of your life. Enjoy!

Pro-Life Mississippi