Caring for an aging parent can be a full-time job.
Adult children may give up paying jobs and leave their own homes and families in order to provide care to aging parents. While caregiving can be unpaid work, parents who want to compensate an adult caregiver child may pay pursuant to a caretaker contract or even transfer the parents’ house as compensation. This transaction is known as the “caretaker child” exemption.
In this transaction, a parent can transfer the house outright to an adult child who (1) has lived with the parent in the parent’s home for at least two years; and (2) provided care that allowed the parent to remain at home instead of entering a care facility. This transaction allows a parent to compensate a child who has made significant personal sacrifices in order to care for the parent.
Transferring a house can have Medicaid planning advantages, as well. Seniors who need nursing home care may apply for Medicaid to cover those costs. Generally, a senior can qualify for Medicaid if the senior meets the income and asset limits and has not gifted any money away within the five years prior to applying for Medicaid. Potentially, any assets that are gifted away in that five-year “look back” period could be penalized.
However, transferring the home under the caretaker child exemption is permissible under Medicaid rules in that the parent can transfer the home outright to a caretaker child without penalty and the parent will continue to gain eligibility for Medicaid.
There are several aspects required to take advantage of this exception:
- The caretaker must be a biological or adopted child. Other relatives, such as foster children, grandchildren, nieces, nephews, sons-in-law and daughters-in-law, are not eligible for this transaction.
- The home must be the parent’s main residence prior to entering a nursing care facility. Summer homes and other properties will not suffice.
- The care provided by the adult child must have enabled the parent to continue to live at home, rather than needing a care facility. Documentation like a notarized Personal Care Agreement is necessary to establish the type of care provided and the commencement of two years of care. Care may include medication management, providing meals, providing assistance with activities of daily living, and ensuring the health and safety of the parent. A doctor’s note may be necessary to show that the child’s care allowed the parent to remain at home when the parent could have entered a care facility.
- The caretaker child must have lived in the home while caring for the parent for two years. Evidence, such as a driver's license, bills and tax returns, may show the adult child lived in the parent’s home for the requisite two years.
Primarily, this caretaker-child transaction allows an aging parent to remain living in their home and to receive care provided by an adult child. This transaction is not intended to preserve a child’s expectation of an inheritance. However, transferring a house can have serious tax and other Medicaid consequences, so it is important to consult with an elder law attorney prior to finalizing the transfer.
Kara Gansmann is an attorney in the Wilmington office of Cranfill Sumner & Hartzog LLP, where her practice encompasses elder law and estate planning. Kara advises individuals and families with estate planning needs and asset protection tactics. In this role, she strategizes with clients to preserve assets for long-term care and to leave legacy gifts to family members. Kara works with elderly clients in need of Medicaid crisis planning and Medicaid applications. As part of her practice, Kara drafts wills, trusts and powers of attorney. In the courtroom, Kara represents clients in the administration of estates, guardianship/incompetency proceedings, and guardianship administration. Kara also litigates estate and trust matters, including will caveats, the modification or termination of trusts, and litigation arising from estate documents or fiduciary roles. She is a member of the North Carolina Bar Association Elder Law and Special Needs Section and serves as co-chair of the CLE Committee for that section. Kara also serves as a liaison between the North Carolina Bar Association Elder Law and Special Needs Section and the North Carolina Bar Association Estate Planning and Fiduciary Law Section.