Q: Can my parents transfer ownership of their home to me remain in the home and still qualify for Medicaid in 5 years
We are in Alabama
Your question is a common one, but unfortunately it is not simple. First, it would be worth the time, effort and expense to consult with a legal or financial advisor about this decision and how it specifically affects your parents. It could have unintended consequences and ramifications extending even beyond Medicaid and long-term care concerns. There are various factors to consider in making decisions about long-term care planning, including: the specific health of the client, the family situation, other assets, etc.
In very general terms, the transfer of the home may not be necessary as the home is an exempt resource for eligibility purposes. There is also a risk in having someone other than the occupant own the home. If the third party owner gets a divorce or has a lawsuit filed against them, the home is at risk. Further, the third party owner could die and his or her heirs may not honor the agreement to allow the occupant to remain in the home.
From a tax perspective, transferring the home may have unintended tax consequences (these are a hidden cost of the transfer). These include: 1. Loss of the homestead exemption, 2. Loss of stepped-up basis upon the heirs selling the property and 3. Loss of the personal residence exemption should the home need to be sold during the life of the original owners.
From a Medicaid perspective, if the occupants are not paying the new "owner" a fair market value rent, then it may not be considered a true transfer and therefore the home would still be a resource for benefit purposes (even though the home is exempt as mentioned above).
There are proper ways to maximize the protection of the home, but the proper technique really does depend on the various factors referenced above. Some examples include: a life estate, the caregiver child exception, the disabled child exception, the community spouse exception, etc. In elder law situations there is rarely a "one-size fits all" solution and if someone tells you that there is, turn and run away as fast as you can.
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