Should You Add Your Child's Name to Your House for Nursing Home Protection

This is one of the questions I get asked most often, and I understand why. The house is usually a family's largest and most sentimental asset, and no one wants to lose their home to nursing home costs. In the Boston area, nursing homes can cost $200,000 per year or more.

Adding a child's name sounds simple. Unfortunately, it is rarely the best answer, and it is never a one-size-fits-all decision. There are actually several different ways to approach this, and each comes with real tradeoffs.

Outright Transfer

Deeding the house directly to your child removes it from your name entirely. This starts the MassHealth five-year lookback clock running on the value of the home, which is the first step in protecting it if nursing home care is needed. But you also give up control completely. The house becomes your child's asset, meaning it is exposed to their creditors, a divorce, or a lawsuit against them.

There is also a tax cost. Because you no longer own the house at your death, your child does not get what is called a step-up in basis, meaning their cost basis stays whatever you originally paid for the property, not its value when you passed away. If the house has appreciated significantly, and most have, your child could face a substantial capital gains tax bill when they eventually sell it.

Joint Ownership

Adding your child as a joint owner is a smaller version of the same problem. You gifted a share of the house, which still starts the lookback clock on that portion, which is good, as long as you won't need to rely on MassHealth to pay for your care during the next five years. The child's share is exposed to your child's creditors and marital issues, and you now need your child's cooperation to sell or refinance the property, since they are a co-owner. The same capital gains problem applies here too: your child's share does not get a step-up in basis.

Life Estate

A life estate deed lets you keep the legal right to live in and control the property for the rest of your life, while your child holds what is called a remainder interest, meaning they automatically own the house after you pass away. This avoids probate at your death, and because the house is still considered part of your estate for tax purposes when you die, your child generally receives a full step-up in basis, which can eliminate most or all of the capital gains tax they would otherwise owe if they sell.

A life estate tends to work best when you do not plan on selling the house. You can still rent it out if you choose, but this option makes the most sense if your plan is to keep the home for the rest of your life rather than sell it later. Of the options here, a life estate generally provides you with the most protection and control personally, since you retain the legal right to live in and use the property for as long as you live. It protects the home if you need nursing home care in the future, as long as five years pass from establishing it.  However, you cannot sell the property without your child's agreement.

Irrevocable Trust

An irrevocable trust, properly drafted, can hold the home in a way that protects it from MassHealth once the five-year lookback period has passed, while giving you more flexibility than a life estate, such as the ability to change beneficiaries or address unexpected circumstances. If the trust is structured correctly, typically as an income-only trust where you retain the right to income and certain limited powers, it can also preserve the step-up in basis at your death, the same way a life estate does.

This option generally means giving up more day-to-day control than a life estate does, and it costs more to set up. It is also worth knowing upfront that if there is still a mortgage on the property, an irrevocable income-only trust may not be workable, so this is often better suited to homes that are owned outright.

There Is No Universal Answer

In my experience, there is no single right answer here. The best approach depends on your health, your timeline, your relationship with your children, your tax situation, and how much control you are willing to give up. What works well for one family can be the wrong choice for another.

At Senior Solutions, we believe that Planning + People = Peace of Mind®. Before you make any decision about your house, it is worth having a conversation about what you are actually trying to protect, and what you are willing to give up to protect it.

Senior Solutions, Attorneys at Law, is an Estate Planning and Elder Law firm serving the Greater Boston, Massachusetts area since 2001. We are ready to help you with Medicaid Planning, Estate Planning, Probate, Guardianship & Conservatorships, Special Needs Trusts, and Fiduciary Services. We are here to help. Please call our office at 617-489-5900 or schedule an initial consultation.

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