For many families, their primary asset is their house. Additionally, if one, or both, spouses in a relationship require a nursing home stay, Medicaid nursing home coverage can quickly become the best way to afford the necessary care.
To qualify for Medicaid nursing home coverage, individuals and couples must be below a certain total asset level. Once a person on Medicaid dies, the state Medicaid agency can then file a lien on that person’s estate to pay for the Medicaid coverage received. Depending on the length of the stay and specific care received, this lien can wipe out most, if not all, of a person’s estate.
While a couple’s primary residence is exempt from being counted toward the initial Medicaid asset cap, the state can still recover against the value of the home after the person dies if the couple takes no steps to protect their house.
If only one spouse is anticipating needing nursing home coverage, the simplest way to protect the house is to transfer the title completely to the other spouse. Under this plan, one spouse receives Medicaid nursing home coverage and the remaining spouse has full title to the house without being subject to a lien from the state. However, the major weakness of this plan is that if the remaining spouse also eventually needs Medicaid nursing home coverage, the home would again become subject to a lien by the state. Another weakness of the simple transfer plan is that if the spouse not in need of Medicaid coverage dies before the other spouse, any subsequent below market transfer of the house may endanger the living spouse‘s Medicaid coverage and subject the value of the house to recovery by the state.
If given enough time, for a single person, changing their ownership interest to a life estate is an option to protect their residence for future beneficiaries. Under a life estate, the current owner retains ownership, and the rights and responsibilities of ownership, for the remainder of their life. After death, ownership transfers to the beneficiaries named in the deed that created the life estate. A life estate deed also causes the house to avoid the probate process.
One area to watch out for is that the life estate deed had to be signed and registered over five years before the individual needs Medicaid coverage. When applying for Medicaid nursing home coverage, Medicaid not only looks at current assets when determining compliance with the asset cap, but also adds back any below market transfers made within the previous five years. (Note: transfers between spouses do not apply to this look back period.) If the life estate was made within the previous five years, then the value of the house is included in the individual’s available assets when determining Medicaid eligibility. The value of the house could then cause a significant depletion of the individual’s estate before they become Medicaid eligible.
The other weakness of the life estate plan is that it only protect’s the family’s primary residence.
A third, more comprehensive approach would be the creation of an asset protection trust. An asset protection trust can protect many assets beyond just the primary residence. However, like the life estate option, assets have to be transferred to the trust over five years before either spouse requires nursing home coverage. The additional benefit of the trust is that a couple can create a comprehensive plan for how they want their assets to be managed and protected for future beneficiaries.
The key to any successful option is to start planning as soon as possible. An experienced, local elder law attorney can work with clients to develop a plan that complies with state and federal rules and regulations, protects as many assets as possible, and serves the client’s potential needs.
To look into protecting your primary residence, and other assets, from a Medicaid covered nursing home visit, please call Martha C. Brown & Associates at (314) 962-0186.