3 Reasons Not To Gift Assets to Your Children to Qualify for Medi-Cal
There are huge problems in transferring assets to your children in order to qualify for Medi-Cal.
Danger #1 – Medi-Cal May Disqualify You
Medi-Cal wants to know what transfers you made (as a gift) for the last 30 months!
Each transfer can result in penalties assessed – these are months that you cannot apply to Medi-Cal. And it’s usually irreversible!
If, for example, you transferred X amount of assets, it could result in a 20-month penalty. This penalty means that for 20 months, no matter what situation you are in, Medi-Cal will not pay a dime for your Nursing Home Care.
It’s very important to know not to do this without the proper advice.
Danger #2 – Loss of Tax Benefits
One of the biggest breaks the government gives us (and there are not many!) is a gift for your children when they inherit the property (called a step-up in basis or a stepped-up basis). Your children will not have to pay capital gains tax on property sold after you pass away. Poof! All that capital gains are gone!
For example, if you bought a piece of property for $100,000 and you sold it for $1,000,000, you will likely have a $900,000 gain. Taxman wants to be paid on that gain because you became richer. They will likely charge you 20% on that gain.
Instead, if you give the property as an inheritance to your child after you die, the capital gains will vanish because of a step-up in basis. The new basis is the date of death value so that if it was sold one day after death, there will not be any capital gains. What a huge tax break!
However, when you transfer something to your kid while you are alive, your kid now owns it. If you transfer that property to your child while you’re still alive, you don’t get to take advantage of the step-up in basis. If your child sells, there will likely be a huge tax!
Danger #3 – More Liability in Lawsuits
Let’s say your child owns your house now. That child then gets sued. Guess what asset they can now take? YOUR HOUSE! It doesn’t matter that you are living inside of it. It is an asset that belongs to the child. Is that what you intended? I’m sure it isn’t.
Is there a way to avoid this scenario? Absolutely. It’s called proper Medi-Cal Planning.
And that is why we call gifting assets to your children — backyard medical planning. It doesn’t work. So make sure to do this the right way. Find yourself the proper advice for Medi-Cal planning.
At Aliav Law, we offer free discovery calls – a 15-minute call with an attorney regarding the above issues. Click here to schedule your call.
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