If you’re worried about losing your home to pay for nursing home care, that worry is reasonable — but giving the house to your children isn’t the fix most people think it is.
Here’s the situation: you generally don’t have to sell your home to qualify for Medicaid’s nursing home coverage. But after you die, the state can file a claim against your estate — including the house — to recover what it spent on your care. This is called estate recovery. To avoid it, many people consider transferring the home to their kids while they’re still alive. Before you do, here are three reasons that plan often backfires.
1. It can make you ineligible for Medicaid
Medicaid looks back 5 years from your application date at any transfers you’ve made (this “lookback period” applies in every state except California, where it’s being phased out entirely by mid-2026). If you gave away the house — or sold it for less than it’s worth — during that window, you’ll face a penalty period: a stretch of time where Medicaid won’t pay for your care, even though you no longer have the money to pay for it yourself. Depending on the home’s value, that penalty can last years, and it doesn’t even start until you’re nearly out of money.
Exceptions that let you transfer the home penalty-free:
- To your spouse
- To a child under 21, or a child who is blind or disabled
- Into a trust for the sole benefit of a disabled person under 65
- To a sibling who already has an ownership stake in the home and lived there for at least a year before you entered care
- To a “caretaker child” — a child who lived with you for at least 2 years before you needed nursing home care and whose help during that time is what kept you out of a nursing home
These exceptions have specific documentation requirements, so talk to an elder law attorney before relying on one.
2. You lose control of the house
Once you transfer the house, it’s not yours anymore — it’s your child’s. That means:
- They can sell it, refinance it, or do whatever they want with it, regardless of what you’d prefer
- If your child gets sued or divorced, the house is exposed to their creditors and their ex-spouse
- You’re now living in a home you don’t legally own
3. It can trigger a bigger tax bill for your kids
This is the one people miss. When you die and your child inherits the house normally, it gets a “step-up in basis” — the tax cost basis resets to the home’s value on your date of death. If they sell it soon after, there’s often little or no taxable gain.
But if you give the house away while you’re alive, there’s no step-up. Your child inherits your original purchase price as the basis. So if you bought the house for $80,000 decades ago and it’s now worth $500,000, and your child sells it after you pass, they could owe capital gains tax on roughly $420,000 of gain.
There’s a partial fix: if your child lives in the house as their primary residence for at least 2 of the 5 years before selling, they can exclude up to $250,000 of gain ($500,000 for a married couple) under the home sale tax exclusion. But that only helps if they’re willing and able to move in.
What to do instead
Giving the house away isn’t the only option — and often isn’t the best one. Alternatives worth discussing with an elder law attorney include:
- Placing the home in an irrevocable trust designed for Medicaid planning
- Using a life estate deed
- Exploring your state’s specific estate recovery rules, since some states only pursue recovery through probate and can be avoided with the right titling
Because the rules vary significantly by state and by individual circumstances, the right move for your situation really does require a conversation with a qualified elder law attorney rather than a one-size-fits-all plan.
