Medicaid is the government benefit under which your expenses from your stay in a nursing home may be paid. Under current rules of eligibility for Medicaid assistance, you are required to spend down your assets so that you have only $2,000 of net worth before you can qualify for this government-funded, needs-based, long-term care program. What does that mean for your family home - your main asset - worth much more than $2,000?
Fortunately, your house is considered exempt from the calculation, as long as it is your primary residence, and as long as you are living. Upon your death, however, the government then retains the ability to seek reimbursement from your estate for the amount of money which it paid on your behalf during the course of your stay in the nursing home.
Obviously, the most valuable asset of interest to the government would be the funds available from the sale of the primary family home. To accomplish this, the government would place a lien against the property. This lien would make it impossible for the property to be sold or even refinanced without first paying the government whatever it may be owed.
Is there a way to avoid the Medicaid lien on the house?
The answer is yes. There are a few different ways to achieve this, and the timing of the legal work can be critical to preserving the value of your home.
Pre-planning to protect your estate is always the optimum strategy. Gifting, irrevocable trusts, and life estate deeds are all useful tools.
When you make a gift of your home to your children or other loved one, this removes the house from your financial picture entirely, assuming the gift is completed five years prior to you entering a nursing home. There cannot be a lien placed on property that is no longer yours, and nor could that property be forced to be sold. Of course, you will also be giving up your legal right for you and your spouse to live in the home, so you will be subject to the decisions of your heirs.
You could also transfer your home into an irrevocable income-only trust. This means that you are entitled to receive only the income (if any) that the trust generates. This form of trust removes your house from your probate estate.
A life estate deed is an effective way to ensure that your estate passes in full value to your selected heirs. This type of deed transfers the ownership of your property to whomever you choose, while you retain a "life estate interest." That interest means you reserve the right to live in and use the property for your benefit for as long as you are able. An added benefit is that as long as you are residing there, you may retain your homestead exemption for property taxes.
When the owner of the life estate interest is deceased, their interest is therefore extinguished, and the person to whom the property was previously conveyed in the life estate deed now becomes the full owner of the property. Since the person who held the life estate interest is no longer an owner of the property, this means that the home and its value are protected from a Medicaid lien. Also, the property is not considered a probate asset, leaving it out of that time-consuming and expensive process.
What if you or your spouse is already in a nursing home and has not done any pre-planning such as the life estate deed? Quick action on your part can still have an impact on protecting your property's value.
A deed conveying the property from one spouse may provide protection in a "crisis situation." When exempt property is transferred between spouses, there is no disqualification, or "look-back"period for Medicaid benefits. Therefore, the spouse to whom the property has been transferred is immediately able to feel secure in his or her right to live in and use the property without the fear of it being considered an asset to which Medicaid is entitled. Additionally, upon the death of the spouse in the nursing home, there cannot be a Medicaid lien placed against the property because the home was not titled in that person's name.
Jeffrey J. Rokisky is an elder law attorney with offices in Wheeling, Weirton, Elkins, Clarksburg and Robinson Township. If you would like to submit a question for publication, please e-mail it to firstname.lastname@example.org