Question: My husband died last year and willed our home and all bank accounts to me. We have three children, all grown, and I am 77 years of age. Before he died, our joint income from both Social Security payments, his pension, and some interest from our CD's was about $2,250 monthly. Now I receive what had been his Social Security , a portion of his pension, and some interest totaling a little over $1,500 which has made things rather tight for me. I have been concerned about what will happen if I get sick and have to go to a nursing home because my mother died in a nursing home and lost everything she and my father had worked for. I don't have much, but I would like to make sure at least my home goes to my children. I have read that I could give away the house yet continue to stay there. How does this work?

Answer: Like many surviving spouses, you did not understand that at your husband's death, even though your Social Security benefit increased to what his had been, you would lose your benefit and suffer a reduction in the amount you receive as the survivor beneficiary of his pension. That's why it's a good idea to plan in advance for this contingency.

Saving your home is quite another story. You can certainly transfer your home to your children after reserving either a specified term of years or a lifetime interest. Here's how it works:

If you reserve the use of your home for a term of years (rather than for your life), you will retain the right to use and enjoy the property - and the income it may produce -- for the number of years you may specify. Your rights will continue until the term you have chosen expires, regardless of whether or not you continue to live after that term. If you die before the term has expired, as the "term tenant", you can pass your remaining right by your will. Most individuals do not use this transaction because of inherent dangers of outliving the term specified.

On the other hand, if you reserve a "life estate," you will retain the right to use and enjoy the property - and the income it may produce - during your life. Since a life estate can be reserved for more than one life, while your husband was living, you and he both could have retained "life estates" and transferred the remainder to your children. This is the transaction that most people use because it offers greater protection.

In either event, the "remainder interest" which would be deeded to your children is basically a transfer of the right for your children to use and enjoy the property after either the expiration of the term of years or your death, depending upon what you choose to reserve.

Mathematically, both the life estate and remainder interest have value which depends on your age at the time of transfer. Based upon federal actuarial tables, at age 77, your life estate would be worth 48.742 percent of the value and the remainder interest would be worth 51.258 percent of the value. Therefore, assuming your home is worth $100,000, if you choose to transfer the remainder interest to your children, you are making a gift to your three children of $51,258.

For Medicaid purposes, by making this gift, you will convert your home from a non-countable resource into a period of disqualification that will vary from state to state but which will probably be in the vicinity of 15 months. This means that even if you meet all other Medicaid financial and medical qualifications, you will not be able to receive benefits until the disqualification period has expired.

Although no income or gift taxes are due based on this transaction, since you will be gifting to each of your children more than $10,000, you will be required to file a gift tax return by April 15th of the year after the transfer was made. A written appraisal should be obtained before you make the transfer.

Because of the many potential ramifications, transfers of assets should not be made without planning. And planning should only be done with a qualified elder law attorney.