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:
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