Protecting Your House and Medicaid
While reading an article recently on asset protection for physicians I was struck by some of the same issues, but on a different level, for Medicaid and the Medicaid estate recovery program. In particular I noted concern regarding the house. Whether it is a $120,000 property or one substantially higher in value property owners are concerned about losing their home whether in paying bills or satisfying judgments.
Here is where so many believed strategies do not work and where there is so much misunderstanding.
Taking Medicaid and Medicaid estate recovery first, the inclination of many who are concerned about an actual or future nursing home stay is to transfer the house quickly to someone else. The thought is that, if the house is in someone else’s name no claim could be made against it. (Note there are similar inclinations among some in high asset categories as well.) For Medicaid purposes, if the someone else who receives the house is an adult child, unless that child fits certain clearly defined exceptions, transferring the house only results in more problems. Here is why.
As far as the government is concerned, transfer of say a $400,000 residence to someone else, again unless that person fits certain clearly defined categories, means that a $400,000 gift has been given to that person. Medicaid works on the theory that assets that otherwise could be used to pay for care should not, with some exception, be given away within the five year period prior to requesting the government to pay for benefits, the so-called five year lookback. Generally speaking, unless you fit certain exceptions, the government would, when your family member has exhausted his or her funds, refuse to pay unless you or they pay during an extended penalty period for the cost of their care.
There are, however, some exceptions to the gifting rules if you fit certain categories. Do not try to do this yourself. Get professional help. An elder law attorney experienced in Medicaid really needs to walk you through on the details.
Here are exceptions.
Spouses. A transfer of your residence to your spouse would not result in penalties under the Medicaid rules. Commonly this means transfer from tenants by the entireties to transfer to the healthier wife or husband. It is understood that your spouse would need the house. It is also understood that transfer to your spouse at home, the term being “community spouse” is not a disqualifying transfer. In fact, it is the common practice and needs to be done as part of Medicaid planning.
The Disabled Child Exception. If a parent transfers his or her house to his disabled child, this is also without penalty under the Medicaid rules, again on the theory that it can be needed for self-support by the disabled child. I cannot count the times when I have been told that it was a tragedy that someone’s child lost her home because her parent went to a nursing home and was on Medicaid. That is not necessary and the house could have been transferred to the adult disabled child.
The Caretaker Child Exception. If you moved in with your parent and lived with your parent or parents for a period of at least two years when they needed help to avoid going to nursing home care or maybe you have lived with your parent much longer than that and they needed this care at home, under federal law the house can be transferred to you without Medicaid penalty and your parent can go to a nursing home after this time and receive care under Medicaid. Again, I cannot count the times adult children have not been aware of this exception.
If you are single or are a widow or widower and will likely never return home after moving into a Medicaid certified nursing home, the house can be sold and planning might be done with the proceeds of the sale. Otherwise you could be in a position of paying bills on a vacant house for no reason and the government as a creditor could claim after your death on the estate recovery program. If you or your family need assistance in planning, get help.
About the Author Janet Colliton
Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.