Don't Transfer the Home! (Part One)

Often when an individual elder adult has suffered his (or her) first minor stroke, or has received an early diagnosis of dementia or some other debilitating disease, the children (even the elder himself) will decide to "take action" - because the threat of huge, inevitable nursing home expenses, followed perhaps by a State's "lien", seems certain.

And the action taken is frequently an immediate deed-transfer of the elder's home to one or more of the elder's children. The belief is that the home is "safer" in the children's hands, away from the reach of the "system", and, if necessary, the home can still be sold by the child(ren) to pay for the elder's care.

However, this typical “knee-jerk reaction” transfer is a critical error which creates more risks and damage than the protection it is intended to accomplish.

First of all, for purposes of illustration in this four-part series, let's assume the following background facts:

Background Facts:

1. That the elder adult is my father, who purchased his home in Walnut Creek for only $16,000.
   
   
2. Assume further his home is worth $816,000 (i.e. it has $800,000 of appreciation).
   
   
3. Assume further that my father's home is free and clear (the purchase loan was paid-off long ago).
   
   
4. Assume further that the assessed value of his home is $160,000.
   
   
5. Assume further that my father has, aside from his home, modest resources of, say, only $12,000.
   
   
6. Assume lastly my father and I "panic" in light of his first minor stroke or fall... and he decides to transfer his home to me.

The First Reason Not to Transfer the Home: Despite the Child’s Good Intentions, the Home Could be Lost to Misfortune.

My father's home, now in my hands, is at considerable risk - not because he can't trust me, but because Murphy's Law and just "bad luck" are forever busy.

For instance, what if I were to suffer some major injury which wasn't totally covered by medical insurance, and as a result of the huge medical debts (or other bills I couldn't pay because I was out of work, recuperating, for a month or more), I had to file for bankruptcy? Because I (rather than my father) now own the home, the bankruptcy trustee would be force-selling the home to satisfy my creditors' claims - and my father would be "on the street".

What if I were to run-down Rush Limbaugh (or some other commentator or politician) in a cross-walk for whom no insurance was enough money, and I was consequently sued in a ridiculously large lawsuit.... or just some other lawsuit..... and my insurance was insufficient (or I had none) to handle the resulting judgment against me? Again, because I now own the home (rather than my father), my judgment creditors would be placing their judgment liens on, and force-selling, my father's home to satisfy their judgments - and my father would be "on the street".

What if I was "so sure" that ... if I just obtained a modest loan on the home... and I just invested the loan proceeds through my Scottrade account in, let's say, "sure thing" investments like Lehman Brother's stock, or Washington Mutual stock, or with Bernard L. Madoff''s Investment Securities, LLC, - and I was mistaken, and the investment became worthless... or just worth less? A sizable portion of my father's equity in the property is lost...

What if I unexpectedly predecease my father (driving home on our local 680 freeway these days is like "running with the bulls"... and almost as hazardous). At my death my estate, which includes my father's property, would be left to..... whom??

There are more examples, but this should be sufficient to make the point. My father should keep the ownership of his home in his own name. In my hands, and despite my best intentions, I cannot guarantee his home will always be there for him.

Important Side Note: I often remind clients that the State of California does not develop rights against a person's home simply because that person "might" need nursing home care in the future. The State does not impose any pre-nursing-home liens or claims against a person's home or other assets. A person's home does not become an immediate target upon his first broken hip or an arguable case of dementia. Quite to the contrary (and it is very important to remember this) the State has no claim to any property of a person until it spends at least "dollar one" on that person's care through the Medi-Cal system (and note that I am here referring to the Medi-Cal system, not the MediCare system - you need not worry about Medicare expenditures - neither the State nor federal government attempts to recover for Medicare benefits paid). Moreover, should the State of California start spending money on a person's care through the Medi-Cal system, it can only later recover the amount of money it actually spent on that person's care. The State is not entitled to a "windfall"; it can not lay a claim to a person's entire home or assets simply because that person began receiving Medi-Cal benefits. And then again, with proper estate planning, that potential "recovery" can often be entirely eliminated.

With an updated and properly structured durable power of attorney, one which authorizes specific gifts of real property and other assets in the event of permanent nursing care, my father can continue to keep his home and other assets securely in his own name, and still empower me to transfer his home, cash, investments, etc. - if the need later arises.

So don't transfer your home prematurely. Instead update your estate plan documents with my assistance, or with the assistance of another experienced elder law and Medi-Cal planning attorney. Your home is the most valuable asset you own. Don't make a risky, haphazard transfer of it.

See Part Two - Medi-Cal ineligibility which a transfer of the home will create.