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Selling the House for a Dollar Isn’t Really Selling the House

House Concept

businesswoman holding a mini house for real estate concept

What does it mean to sell your house?  Most people think it means transferring ownership of your home to an unrelated buyer for fair market value received (i.e. when you list your home for sale with a realtor and try to get as much money as possible for it).

Sometimes, however, people want to protect the house from long term care costs and keep it in the family.  They want it to go to a child or some other family member.  In many of those situations people will sell it to their loved one for $1.00 or some other small, nominal amount.

But is that transaction really a sale of their house?

The reality is that “selling your house to a child for a dollar” isn’t a sale, it’s a gift.  It’s the transfer of a piece of property – your house – in exchange for a nominal amount.  In that exchange you receive significantly less than its fair market value.  The dollar doesn’t purchase the equity in the home and the value of the uncompensated equity is a gift.

For example, if someone “sells” a $200,000 house to their child for $1.00 they made a $199,999 gift to their child.  That amount is the equity that was given to them without fair market payment in return.

You have to be really careful with this.

Some people make this “sale” as an asset protection planning strategy.  They think this can help protect money from the cost of their long term care.  But, if the time comes that they need Medicaid, this transaction will be considered a gift and result in a Medicaid penalty.

Be really careful when you think about selling your house to someone for $1.00.  Get advice from an elder law attorney to make sure that this transaction doesn’t hurt you in the long run.

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