Can I Gift My House to My Children?

Yes, you can gift your house to your children, but it’s not usually the best choice. While there is no rule preventing you from legally transferring the title of your property to your children as a gift, doing so can have tax implications and affect your eligibility for public benefits. For many families, leaving the property as part of an inheritance is a more appropriate tool when it comes to estate planning.

If you’re considering whether you’ll need long-term care, you may worry that you’ll have to sell your home to cover the costs of living in a residential care setting. If you need a nursing home level of care and meet income and asset criteria, you may qualify for traditional Medicaid. Medicaid pays all nursing home costs for eligible individuals. Many states also have home- and community-based waiver programs that may help qualifying seniors pay partial costs of assisted living. Upon death, the state may try to recover any care costs paid by Medicaid through a process known as estate recovery. This means the state may take the proceeds of the sale of your home to cover amounts already paid.

To prevent families from bypassing estate recovery rules by simply gifting a property, Medicaid has a look-back period for eligibility. In most states, the look-back period is 5 years. This means that Medicaid officials scrutinize any assets transferred within this period, including any transactions completed by your partner. If people have gifted property, large cash sums and other assets during the look-back period, it can disqualify applicants from receiving financial aid. These conditions also apply for assets that have been sold for less than the fair market value. However, if you gifted your home more than 5 years before your benefits application, it is exempted from the look-back rule.

If benefits aren’t a consideration and you age at home with your children acting as your caregivers, you may think it makes sense to transfer property ownership to them to avoid inheritance tax. However, inheritance tax only applies in six states: Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania. In contrast, capital gains tax is applicable across the nation. Gifting a home to your children can potentially make them liable for hefty capital gain taxes. Capital gains taxes are often a lot less for properties that have been inherited after death as opposed to those gifted during a person’s lifetime. Additionally, paying inheritance taxes in applicable states is often cheaper than paying capital gains taxes for a gifted property.