Caregiver Child Exemption: Transfer the Home to Children without Medicaid Penalty

Definitions

What is the Caregiver Child Exemption?

The Caregiver Child Exemption, also known as the Caretaker Child Exception, enables an elderly individual to transfer their home to their adult child without violating Medicaid's 5-year look back rule on asset transfers. Therefore, they can transfer their home and continue to be or gain eligibility for Medicaid.

The Caregiver Child Exemption allows adult children to care for their parent at home as opposed to moving them into a Medicaid-funded assisted living residence or nursing home. It is a Medicaid-sanctioned method that enables the adult child to be compensated for their caregiving in the form of a transfer of the parent's home. The home would have otherwise have to be sold and the proceeds used to pay for nursing home / assisted living care.

To qualify for the Caregiver Child Exception, the caregiver child must live in the home with his or her parent for at least two years prior to the parent’s admittance to a nursing home or assisted living facility, and they must provide a level of care that prevents the senior from needing to relocate during this time period.

Medicaid's 5-year look back is a rule that considers the asset transfers a Medicaid applicant has made in the 60 months prior to their application. The Caregiver Child Exception is an exception to this rule.

What Defines a "Child"

For the purposes of Caregiver Child Exemption, a "child" is defined as either a biological or adopted child. They are considered eligible recipients of a home transfer if they have lived in the home and provided care for a period of two years. Other relatives, such as foster children, grandchildren, nieces, nephews, son-in-laws and daughter-in-laws, are not eligible.

What Defines a "Home"

For Medicaid's Caregiver Exception, a "home" is defined as the elderly individual’s main residence prior to relocating to a care facility. Summer homes and vacation homes do not qualify for this Exception if they are not the individual’s primary residence.

A broader but still allowable definition of the home includes the land, garages or other buildings on the land. Condominiums and mobile homes are eligible properties as are buildings that have separate apartments as long as the parent and child are housed in the same building.

What Defines "Providing Care"

The care provided by the adult child must have enabled the senior to continue to live at home, rather than need to live in an assisted facility or nursing home. Documentation indicating that this is the case is required. Providing care for an elderly parent may include monitoring medications, providing meals, providing assistance with activities of daily living, such as bathing, dressing, and using the bathroom, and ensuring the health and safety of the parent.

 

Eligibility and Qualifying

The adult child caregiver must have resided in the home of his or her parent for two years immediately prior to institutionalization and provided a level of care preventing the parent from having to live in an assisted living facility or a nursing home. They also must be resident in the home when making the home transfer or have filed an "intent to return".

While all 50 states honor this exception, it’s important to note that some states take a stricter approach than others to the Child Caregiver Exception. Rules and documentation may vary based on the state.

Documentation

Significant documentation is required and the burden of proof lies with the applicant. While it is possible to gather documentation after the fact, it’s best to collect it during the two-year period that care is provided. Documentation will be necessary to prove the following:

1. Relationship of Caregiver to Homeowner - A birth certificate indicating that the caregiver is the biological child of the elderly individual that owns the home needs to be provided. If a child has been adopted, an adoption certificate is needed.

2. Level of Care Provided - Legal documentation that the care provided by the child prevented the elderly parent from admittance to a nursing home or assisted living facility. During the two-year period that the child provides care, a record should be kept documenting events and situations that would have resulted in institutionalization, if not for the child caregiver. Examples of such instances include helping the parent dress, walk, and bathe or preventing them from leaving a burner on or leaving the house in inappropriate clothing.

Documentation from other family members, friends, or neighbors, should also be provided that back up the claims of the child caregiver. If the child caregiver was not able to provide full time care for his or her parent, proof that other care was provided might be necessary. This could include in-home care or adult day care.

In addition, professional documentation from a doctor or a home nurse stating that if not for the care provided by the child for the last two years, the elderly parent would have required institutionalization is also important. Medical records may be needed as proof as well.

3. Adult Child is Resident in the Home - evidence such as a driver's license, bills, and tax returns, that show the adult child lived with the parent two years prior to relocating to a care.

 

Scenarios for Qualification

To illustrate when the Child Caregiver Exemption might or might not be used, three fictional examples are provided. These examples also illustrate the somewhat fickle rules surrounding qualification. If one is considering this course of action, it be may beneficial to consult with a Medicaid planning professional in advance to better ensure the eventual home transfer.

• Fred suffers from Alzheimer’s disease and can no longer live at home without assistance. If his daughter, Violet, quits her $50,000 / year job, moves in with him and takes on a caregiving role, he can continue to live in his own home. With Fred’s current condition, he should be able to continue to live at home for at least two years with Violet’s help. The house is valued at $350,000, and if she lives with her father and cares for him for two years, she will lose out on $100,000 of wages via employment. However, when the house is transferred to her, the value of the home far outweighs the loss of income from unemployment. Most importantly, Fred ages in an environment in which his is comfortable and with a caregiver with whom he is familiar.

It’s important to note that some states may not permit the adult child to work full time outside of the home. These states might consider leaving the parent for long periods of time unattended not providing a sufficient level of care to qualify for the child caregiving exception. In addition, if the parent is left alone for long periods of time, it may be determined that not enough proof was provided to show the care prevented the parent from needing to be institutionalized. However, if supplemental care was provided while the child worked, it’s possible the child caregiver exception may be honored.

The following scenario may be a viable option, depending on the state. The point of contention is the son does not provide all the care.

• Due to Parkinson’s disease, Rosie, is no longer able to live independently without assistance. Her son, Michael, his wife, and children, move into the home with her. Michael has a full time job, but cares for his mother outside of working hours. His wife provides care for his mother while he is at work. They maintain this care arrangement for two years prior to Rosie entering a care facility.

In the third example, the Child Caregiver Exception is not a viable option.

• Sophia suffered a stroke and currently needs assistance with basic skills, such as dressing and feeding herself. Due to the stroke, she currently cannot live alone. Her daughter, Isabel, moves in with her to provide the care she needs. However, in six months time or so, she recovers and is able to live on her own again. Since the period of time she needs assistance is less than two years and Sophia won’t need to live in a care facility after this time, the Child Caregiver Exception won’t come into play.

 

Benefits

The primary benefit of the Exemption is it allows an elderly individual who prefers to remain living in their home to do so and to receive assistance provided by their adult child.

The secondary, but considerable benefit is the family is able to keep their family home rather than surrender it to Medicaid to offset the cost of residential care.

It is worth noting that many elderly persons are resistant to move into residential care and do not have a clear understanding of the distinctions between nursing homes and assisted living communities. Over 90% of individuals who move to assisted living are satisfied with their quality of life once they have do so.

Transferring the Home

Types of Transfers

Transferring the home means that the ownership of the home is transferred from one person to another. For the Caregiver Child Exception, the home is transferred from the elderly parent to the caregiving child. There are two types of transfers.

1. Outright Transfer - In an outright transfer, the elderly parent transfers entire ownership of the home to the caretaking child. The parent does not reserve the right to occupy the home in the deed.

2. Retaining a Life Estate - With this type of transfer, the elderly parent continues to have the right to occupy the home for the duration of his or her life.

Transferring a home to an adult child is a complicated matter, and if not done correctly, can result in serious consequences. For instance, income tax issues may arise, such as the elderly individual losing property tax exemptions, or hefty capital gains tax liability could result for the adult child in the event he or she sells the home. Also, if the transfer of the home is not done correctly, it may disqualify an individual for Medicaid right at the point when nursing home care is required. Again, it is recommended one consult with a Medicaid expert to ensure a seamless transfer.

Tax Consequences

Regardless of whether the home was transferred correctly, there may be tax consequences. If the child continues to live in the home after his or her parent is institutionalized, the home then becomes his or her primary residence. This means if the child decides to sell the home, he or she will not have to pay capital gains tax on the first $250,000 of the home value. If the adult child does not continue to live in the home as his or her primary residence or sells the home prior to two years, taxes will be owed on the difference between the amount the house is sold for and the amount the parent paid for the house. Given the probable long term ownership of the property, this could be a significant difference.

 

Common Questions

Is advance planning required?

There is no law that says a family must state their intention to use the Caregiver Child Exception in advance of doing so. However, given the considerable amount of documentation which is necessary to meet the requirements, it is strongly recommended that families prepare for the transfer in advance, during the two period in which the adult child lives in the home and provides care.

What happens if the elderly individual passes during the two year caregiving period?

As the minimum period required is two years, the Exception does not apply. The deceased's estate would be settled in the traditional manner.

Can the elderly parent and adult child move homes during the two year period?

The Caregiver Child Exemption also applies when the child caregiver and parent have lived together in different residences, as long as they lived together for the two years prior to the parent being institutionalized.

 

How to Begin / Learn More

Assistance is available to help families better understand the Child Caregiver Exception, whether or not it is applicable to their situation and if it is even appropriate. Furthermore, help is available to assist in the planning process.

One might receive limited assistance by contacting their local Medicaid office or their local Area Agency on Aging. However for an objective and thorough analysis and for assistance in the creation and collection of documentation, it is recommended one contact a Medicaid planning professional. Elderlaw attorneys may also be able to provide assistance, but this approach may be more costly.

Should the elderly individual already be receiving Medicaid benefits, the family should reach out to their existing Medicaid contact to inquire about the home transfer exemption.