Gifting Your NY Home to Your Children: A 2025 Guide to the Dangers (Taxes, Medicaid Look-Backs) and the #1 Right Way to Do It.

Gifting Your Home to Your Kids? A 2025 NY Guide to the Dangers

As an estate planning attorney in New York for over 30 years, I have seen well-intentioned families make the same devastating mistake. It starts with a simple, loving idea: “I want to give my house to my children. I’ll just sign the deed over to them now to make it easy and avoid probate.”

Let me be perfectly clear: This is the single most catastrophic financial mistake you can make.

Gifting your home outright is not a savvy shortcut. It is a one-way ticket to a financial nightmare. It can trigger massive, unexpected tax bills, expose your home to your children’s creditors, and, most critically in 2025, make you 100% ineligible for long-term care just as New York’s new, punitive Medicaid “look-back” rules are set to take effect. You are not “avoiding problems”; you are creating them.

At Morgan Legal Group, our job is to protect your family’s legacy. My job, as Russel Morgan, is to stop you from turning your greatest asset into your greatest liability. This guide will walk you through the three great disasters of gifting real estate and show you the *correct* way to protect your home. Contact us before you sign that deed.

Disaster #1: The Capital Gains Tax Trap (The $400,000 Mistake)

This is the mistake that financially cripples your children. Most people do not understand the VAST difference in tax law between “gifting” a home and “inheriting” a home. The difference is often hundreds of thousands of dollars.

What is “Cost Basis”?

Your “cost basis” is, simply, the price you paid for your home. If you bought your Queens bungalow in 1985 for $100,000, your cost basis is $100,000. (It can be “adjusted” by major improvements, but we will keep it simple.)

The “Wrong Way” – Gifting: Your Child Gets Your “Carry-Over Basis”

When you *gift* an asset to someone, the IRS states that your cost basis “carries over” to them.

• You gift your $100,000-basis home to your daughter in 2025.
• It is now worth $1.1 million.
• Your daughter’s cost basis is *not* $1.1 million. Her cost basis is your old $100,000 basis.
• If she sells the home, the IRS sees a $1,000,000 profit (capital gain).
• She will owe federal and NYS capital gains tax on that $1M. This could be a tax bill of $250,000 to $400,000.

By trying to do her a “favor,” you just handed your daughter a six-figure tax bomb.

The “Right Way” – Inheriting: Your Child Gets a “Step-Up in Basis”

Now, let’s see what happens if you do this correctly. Instead of gifting, you pass the home to your daughter *upon your death* (ideally through a trust).

• Your daughter *inherits* the home.
• The IRS states that the cost basis “steps up” to the fair market value on the date of your death.
• The home is worth $1.1 million when you pass. Your daughter’s new basis is $1.1 million.
• If she sells the home the next day for $1.1 million, the IRS sees a $0 profit.
• Her tax bill is $0.

This single distinction—”gifting” vs. “inheriting”—is a $400,000 difference. A Revocable Living Trust is the single best tool to ensure your child gets this step-up *and* avoids probate. Gifting is the worst of all worlds.

Disaster #2: The 2025 Medicaid Crisis (The “Look-Back” Trap)

This is the 2025 “time bomb.” Gifting your home is the fastest way to make yourself ineligible for long-term care, just as New York is making the rules more brutal. Here is the reality check: Medicare does not pay for long-term care.

Medicare is your health insurance. It pays for your doctor. Medicaid is the *only* program that pays for the $15,000-$25,000 *monthly* cost of a home health aide or nursing home. To get Medicaid, you must be “poor.” Gifting your home does not make you poor; it makes you *ineligible*.

The 5-Year Look-Back for Nursing Home Care

For decades, New York has had a 60-month (5-year) “look-back” period for *nursing home* care. This means when you apply, Medicaid scrutinizes every financial transfer you made for the last five years.

• You gifted your $1.1M home to your daughter four years ago.
• You now need nursing home care.
• Medicaid “finds” the $1.1M gift. They deny your application.
• They impose a “penalty period” (calculated by dividing $1.1M by a regional rate). This penalty could be 7+ years long.
• This means you are ineligible for care, you have no home, and you have no money. You are left with no options.

The 2025 “Home Care” Crisis: The 30-Month Look-Back is Here

This is the new crisis. For years, NY had “no look-back” for *Community (home) Care*. This allowed for “crisis” planning. That era is over.

New York is in the process of implementing a new 30-month (2.5-year) look-back for home care. This rule is imminent. As of late 2025, it is the single biggest threat to seniors. The moment this rule is fully implemented, the “crisis” planning window slams shut.

Gifting your home to your child *today* is the worst possible move. You are starting the 30-month clock *against yourself*. If you need home care in the next 2.5 years, that gift will disqualify you. You have gained *nothing* and lost *everything*.

The “Home Exemption” Trap: Medicaid Estate Recovery (MERP)

Some people think, “I’ll just keep the house. It’s ‘exempt’ from Medicaid.” This is a deadly half-truth. Your home is exempt for *eligibility*, but not from *recovery*.

This means you can get Medicaid while owning your home. But Medicaid tracks every dollar spent on your care. When you die, they file a lien against your estate (a MERP claim) for the $400,000 they spent. Your children *must* sell the house to pay back Medicaid. The only way to avoid this is to get the house out of your name *and* out of your probate estate. A simple gift fails this test. A proper trust solves it.

Disaster #3: You Lose All Control and Expose Your Home

Let’s set aside the taxes and Medicaid. The moment you sign that deed, the house is no longer yours. You have given up 100% of your control and exposed your home to 100% of your child’s problems.

You Are No Longer the Owner

Want to sell the house and move to Florida? You can’t. Your child is the owner. Want to get a reverse mortgage or a home equity loan? You can’t. You have no collateral. What if you have a falling out with your child? They can legally evict you. You have become a tenant in your own home.

You Are Now Liable for Their Debts

Is your child married? Their new spouse may now have a marital claim on *your* home in a divorce. Does your child have a business? If they get sued, a creditor can place a lien on *your* home. Does your child have a tax problem? The IRS can come after *your* home. You have tied your financial security to your child’s life, and you have no control over their choices.

The “DIY Traps”: Other Wrong Ways People Gift Homes

Because gifting is so dangerous, people try “clever” shortcuts. These are just different, equally dangerous traps.

Trap #1: Adding a Child to the Deed (Joint Tenancy)

This is the most common “DIY” mistake. You add your son’s name to your deed as a “Joint Tenant with Right of Survivorship.” The idea is that when you die, he gets it automatically, avoiding probate. While it *does* avoid probate, it fails every other test:

• It’s a Gift: This is a gift for Medicaid purposes. It triggers the look-back.
• It’s a Tax Trap: It (partially) destroys the “step-up in basis,” creating a huge tax bill.
• It’s a Creditor Risk: You have just exposed 50% of your home to your son’s creditors, ex-spouse, and lawsuits.
• It’s a Loss of Control: You cannot sell or refinance without his signature.

This “simple” fix is a complete disaster. Do not do this.

Trap #2: The “Life Estate” Deed

This is a slightly more formal “DIY” tool. You sign a deed that gives the house to your children (the “remaindermen”) but “reserves” your right to live there for life (the “life estate”). This is better than joint tenancy, but still deeply flawed.

• It’s a Medicaid Trap: This is *still* a transfer that triggers the 5-year/30-month look-back. It is not a solution.
• It’s Irrevocable: You cannot undo it. If you want to sell the house, you *need all your children to sign*. What if one refuses? What if one is in a nasty divorce? What if one has died and their share now belongs to their spouse, whom you hate? You are stuck.
• It Has Tax Consequences: While it does preserve the “step-up” (a key advantage over gifting), it is inflexible. It creates a complex legal situation that is far inferior to the flexibility of a trust.

These “simple” deed-based shortcuts are traps. The *only* correct way to transfer real estate involves a trust.

The #1 Right Way to Protect Your Home: The Power of Trusts

You have two primary goals:

1. Protect your home from probate and pass it to your kids tax-efficiently.
2. Protect your home from the $20,000/month cost of long-term care.

No deed can do this. A simple gift fails. A will fails. You need a trust. But which one?

Solution #1: The Revocable Living Trust (The “Control” Solution)

A Revocable Living Trust is the cornerstone of a modern estate plan. You create a trust and transfer your home into it. You are the Trustee. You have 100% control.

This trust achieves several critical goals:

• It 100% Avoids Probate: When you pass, your “Successor Trustee” takes over. The home passes to your kids privately, with no court, no delays, and no public filings.
• It 100% Preserves the “Step-Up in Basis”: Because you “controlled” it for life, it is part of your estate for *tax* purposes. Your children inherit it at the date-of-death value and pay $0 in capital gains tax.
• You Retain 100% Control: You can sell the house, refinance it, or even dissolve the trust. Nothing changes.
• It Protects You During Incapacity: If you have a stroke, your Successor Trustee steps in to manage your affairs, avoiding a public guardianship.

The Limitation: A Revocable Trust is “invisible” to Medicaid. It does *not* protect your home from long-term care costs. For that, you need the “protection” solution.

Solution #2: The Medicaid Asset Protection Trust (MAPT) (The “Protection” Solution)

This is the tool we use to fight the Medicaid crisis. A MAPT is an Irrevocable Trust. This is the “big” step, and it is the only one that works.

Here is how you *correctly* “gift” your home:

1. We draft a MAPT. You transfer your home into this trust.
2. This transfer *starts the clock* on the 5-year/30-month look-back.
3. You are *not* the trustee, but you retain the 100% right to live in the home for life. You also keep your STAR and other tax exemptions.
4. After the look-back period is over, the home is 100% protected. It is invisible to Medicaid.
5. When you die, the home passes to your children, avoiding probate and 100% safe from Medicaid Estate Recovery.
6. If drafted correctly, a MAPT *also* preserves the full “step-up in basis” for your children.

This is the solution. It achieves *every* goal. It avoids probate, protects from Medicaid, and saves your kids from the capital gains tax. But it *requires* you to plan ahead—at least 5 years, in a perfect world. Given the 2025 crisis, *now* is the time to start this clock.

The 2026 Tax Sunset: The “Gifting” Solution for High-Net-Worth

What if your problem is not Medicaid, but the *2026 Estate Tax Sunset*? What if your estate is over $7 million? In this case, gifting *is* the answer. But you *still* do not just gift the deed.

You use a Qualified Personal Residence Trust (QPRT). This is a special irrevocable trust where you “gift” the home but “retain” the right to live in it for a set number of years. The magic is that the IRS lets you value this gift at a massive *discount*. This allows you to “use up” your high $13.61M federal exemption (before it vanishes in 2026) while using very little of it. It’s an advanced strategy for high-net-worth families.

Case Study: The Staten Island Home

Let’s see this in action for a typical Staten Island family.

• The Family: A couple, 72 years old. Home bought in 1978 for $80,000.
• The Asset: Home now worth $1.3 million.
• The Goal: Avoid probate, protect from nursing home, give to their two kids.

Path A: The “Simple Gift” (The Disaster) They sign the deed over to their kids. Six months later, the wife has a stroke. The 30-month home care look-back is now in effect. They are denied home care. They pay out of pocket. A year later, the husband needs nursing home care. The 5-year look-back is triggered. He is denied. The family is forced to pay, but the kids have the asset. The kids sell the house. Their basis is $80,000. They have a $1.22M capital gain and a $350,000+ tax bill. This “free” gift destroyed their legacy.

Path B: The Morgan Legal Group Plan (The Fortress) They schedule a consultation. We determine their main risk is long-term care, not estate tax. We create a Medicaid Asset Protection Trust (MAPT). They transfer the home into the trust. They continue to live there exactly as before.

• Scenario 1: They need care 6 years later. The 5-year clock is finished. The $1.3M home is 100% protected. They qualify for Medicaid. The home passes to the kids tax-free and probate-free.
• Scenario 2: They need home care 3 years later. The 30-month clock is finished. The home is 100% protected. They qualify for home care.

This is the difference between a plan and a catastrophe.

Frequently Asked Questions From My 30 Years of Practice

Q1: I already added my child to my deed. Is it too late?

No, but you must call an attorney immediately. This is a “scrambled egg” that *can* be fixed, but it is complex. It involves transferring the property *back* to you (which is another gift), severing the joint tenancy, and then transferring it *correctly* into a trust. This has its own tax and (potential) Medicaid implications. Do not try to fix this yourself.

Q2: What’s the difference between a Will and a Trust?

A Will is a letter to the probate court. It *guarantees* you go to court. A Revocable Trust is a private contract that *avoids* court. A Will does *nothing* until you die. A trust can protect you during incapacity. A Will does not protect your home from Medicaid recovery. A MAPT does.

Q3: Isn’t an Irrevocable Trust scary? “Irrevocable” sounds final.

It is final, and that is *why* it works. To protect an asset from a creditor (like a nursing home), it cannot legally be “yors.” A MAPT is a “lockbox.” You are trading *control* for *protection*. While you give up the right to sell or mortgage the home, you retain the right to live there. A good attorney will also draft “powers of appointment” that can give you flexibility to change beneficiaries, but this is a serious decision. It is the only one that provides real protection.

Q4: Isn’t a trust expensive? Gifting the deed is cheap.

Gifting the deed is “cheap” upfront and costs your children $400,000 in taxes later. Or it costs you $1.3 million when Medicaid takes your home. A trust is a one-time investment in your family’s future. It is an act of love that saves your family hundreds of thousands, or even millions, of dollars. The cost of *not* planning is what is expensive.

Your Home, Your Choice

You have worked your entire life to own your home. It is the center of your family and your single greatest asset. Do not let a “simple” mistake, based on advice from a well-meaning neighbor, turn it into a financial time bomb.

The 2025 legal landscape in New York is a minefield. The capital gains tax, the 30-month Medicaid look-back, and the 5-year look-back are all designed to take this asset from you. A simple gift walks right into these traps. A proper legal plan, built around a trust, is your only defense.

Contact Morgan Legal Group Today

As you can see from our Google reviews, we have saved thousands of New York homes from these exact disasters. Schedule a consultation with the 30-year expert team at Morgan Legal Group. We serve clients in New York City, Long Island, and all surrounding counties. Let us show you the *right* way to protect your legacy.

For more information on New York’s capital gains tax and gifting rules, you can review the NY State Department of Taxation and Finance website.