Question: I live with my 86-year-old mother, who has been diagnosed with Alzheimer's disease and is in failing health. I am her main caregiver, although I also work 40 hours a week. She has bequeathed the house to me in her will, but the deed is in her name.
I'm worried about what happens when I no longer will be able to take care of her and she has to go into a nursing facility. She has no insurance for this. If she goes on government assistance, can they take her house?
I've been thinking of selling the house now, getting into a smaller home and paying off her debts before this happens. The upkeep on the house is tremendous and I don't have the resources to keep up with it.
Answer: First of all, hats off to you. It can't be easy working full time and dealing with your mother's declining health and dementia.
Your role as caregiver, though, has a bright side. You probably qualify for special rules that will allow you to keep your mother's home without having to worry about future claims from the government.
Normally, when someone goes on Medicaid, the government medical program that pays for nursing home care for the indigent, the government can put a claim on his or her house after death. This claim is designed to reimburse the government for the costs of the care that was provided.
Some people try to protect their homes from Medicaid claims by transferring the property to family members before they apply. Medicaid has caught on to this, however, and any transfer that's made within 36 months of applying for Medicaid is deemed invalid. That doesn't necessarily prevent people from eventually qualifying for Medicaid, but it does delay eligibility for months, if not years.
One of the exceptions to this invalid transfer rule is when the person going on Medicaid is unmarried, and he or she transfers the home to a child of any age who has lived in the house for at least two years. The child must be the parent's caregiver, with the care allowing the parent to remain at home rather than enter a nursing facility.
Of course, you'll need to decide whether you're OK with your mother going on Medicaid, or whether you would prefer to give her higher quality care for as long as you can.
If you want, you could sell the house, buy the smaller place and use the leftover money to pay for help or a private nursing home for as long as you can.
In any case, Medicaid rules can be tricky, and the home transfer also could have financial and tax repercussions for you, especially if you sell the house after it's transferred.
You would be smart to consult an attorney with experience in elder law, and a tax professional as well, before deciding on your next steps. You also might pick up the book, "Beat the Nursing Home Trap: A Consumer's Guide to Assisted Living and Long-Term Care," by Joseph L. Matthews (Nolo Press, 2001).
Clarifying Capital Gains, Estate Taxes
Q: I read your recent article about the family with the 84-year-old mother who was considering placing all of her kids' names on the deed to her house.
My parents added my sister and me to their house deed many years ago, before our father died, and I am wondering what we are facing when my mother dies. She is also 84 years old and in a nursing home.
I had assumed we would owe no taxes on the house until after she dies and the house is sold. Your article seemed to imply we would owe taxes upon her death regardless of whether the house was sold. Could you please clarify that point?
A: Your original assumption is probably correct. You personally won't owe taxes at her death, although her estate might.
There are two tax systems that come into play here: capital gains taxes and estate taxes.
Estate taxes are assessed when someone dies with more than a certain amount of assets. The amount of money and property that can be passed free of estate taxes to heirs is $1 million this year and is scheduled to rise to $3.5 million by 2009. The estate tax is supposed to be repealed entirely in 2010, although whether that will happen is anybody's guess.
You probably don't have to worry much about capital gains taxes, in any case. If you and your sister didn't purchase a share of the house, or contribute money in exchange for being put on the deed, then the house will receive a new, updated value for tax purposes when your mother dies.
In essence, none of the appreciation that happened while she was alive will be taxed.
You might owe capital gains taxes if the house appreciates more between the time your mother dies and the time you sell the house. If you sell shortly after she dies, of course, this won't be an issue.
The big disadvantage to placing children on a house deed is that it exposes the parents' home to the children's creditors.
In other words, if one of you is sued or files for bankruptcy, your creditors could go after the family home. But if your parents are comfortable taking that risk, then the current arrangement should work for all of you.
Liz Pulliam Weston is a contributor to The Times and a graduate of the personal financial planning certificate program at UC Irvine. Questions can be sent to email@example.com or mailed to her in care of Money Talk, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012. She regrets that she cannot respond personally to queries. For past Money Talk questions and answers, visit The Times' Web site at www.latimes.com/moneytalk.