Transferring Your Home
As we age, we are advised to protect our assets, not only for our individual and family’s needs. Because the home is one of the most important assets in our estate, careful consideration and special thought is required in the disposition of our home. In order to protect one’s real estate, it is helpful to understand how to title the property. The following are variations of property ownership:
Tenancy & Co-Owned Property
When two or more individuals co-own property, the relationship between owners is called “tenancy.” Deciding on the type of tenancy can determine how and whether the property will pass freely at the time of the owner’s death. Tenancy comes in three forms:
- Tenancy in Common allows owners the greatest flexibility. Each cotenant has an interest in the property and is free to transfer this interest during life or through a Will. Cotenants can have different ownership interests and may sever the relationship with other tenants by conveying their interest to another party. This new third party becomes a Tenant in Common with the other owners
- Joint Tenancy must have equal ownership interests in a property. If one of the joint tenants dies, his or her interest immediately ceases to exist and the remaining joint tenants own the property. The disadvantage to both Joint Tenancy and Tenancy in Common is that creditors can attach the tenant’s property to satisfy debt.
- Tenancy by the Entirety is only available to married couples and is based on the societal value of protecting the family. A single tenant is unable to convey interest on his or her own. Also, upon the death of a spouse, the interest automatically passes to the other spouse. The creditors of one spouse are unable to attach the property or force its sale to recover debt unless both spouses consent.
Medicaid, the government benefit program which often provides long-term care and medical costs, has special rules covering the availability of homestead property to cover care. Under Medicaid’s rules, a home is an exempt asset as long as the applicant or the spouse resides in the premises, and its transfer can be exempt from the normal five-year look-back period resulting in ineligibility if transferred to one of the following:
- A spouse
- A minor (under 21), or a disabled child of the individual
- A sibling with an equity interest in the home who resided at the home at least one year before institutionalization
- A son or daughter of the individual who resided in the home for at least two years, prior to institutionalization, and provided care to keep the person from becoming institutionalized
Medicaid now limits equity value of the home to $828,000 to be exempt. This amount is indexed for inflation. A house or houses with a value in excess of this equity cap can result in ineligibility for Medicaid coverage.
Any transfer of a large asset, such as a valuable home, has tax implications. When considering a house transfer, a Capital Gains Tax, Income Tax and Gift Tax must all be fully addressed and reviewed with your financial advisor or accountant.
Before transferring your home to your heirs, or placing the title into a Trust, one should consider: