WHAT IS MEDICAID?
Medicaid is a joint federal and state program that covers long term care costs for applicants who meet health and financial eligibility requirements. The Medicaid program can be used to pay for care in your own home, in an assisted living facility or in a nursing home.
For an individual who is age 65+, blind or disabled to qualify for Medicaid, he or she must have no more than $14,550.00 in countable resources (in 2014). Your primary residence and certain retirement assets, however, are often treated as exempt resources.
Medicaid planning is the process of structuring your property to secure eligibility for Medicaid benefits so that you can pass your hard-earned assets to your family rather than paying for long term care.
The process of Medicaid planning is often complex and designed specifically for your particular set of circumstances, such as the composition of your family, the type of care required and the type of care likely to be required in the future.
The best time to plan to plan for Medicaid is before any care is needed. However, it is almost never too late to plan and protect a portion of your assets for your loved ones. Careful and proper planning, whether in advance or in response to a crisis, can help protect your property for your family.
PROTECTING YOUR HOME FROM LONG TERM CARE COSTS
For many of us, our home is our most valuable and cherished asset. It is the asset that we most want to protect and preserve for our family.
In many instances, when a Medicaid recipient passes away, Medicaid is permitted to recover for the benefits provided to the recipient by asserting a claim against the recipient’s “estate”. Under the current law, the term “estate” only includes the recipient’s probate estate. The probate estate is the portion of a deceased person’s assets that pass under a Will or according to the laws of intestacy. Therefore, by allowing your home to become subject to a probate or administration proceeding, Medicaid may have a right to assert a claim against the home upon your passing.
Under some circumstances, if the primary residence of a Medicaid recipient is not also occupied by a spouse or other designated family member, Medicaid has the right to impose a lien on the home during the recipient’s lifetime if the recipient becomes institutionalized and is not reasonably expected to return home.
So how can you plan to protect your family home?
PROTECTING YOUR HOME WITH AN IRREVOCABLE TRUST
A transfer to a properly drafted irrevocable trust will prevent Medicaid liens against the property during your lifetime and upon your death. Although your trust will own the residence, you retain the exclusive right to occupy and use the property. Upon your death, your beneficiaries will receive certain tax advantages when they inherit the property. Further, during your lifetime, you will keep your real estate tax exemptions and the house may be sold without losing your capital gains exclusion. The sale of the property during your lifetime would not impact your eligibility for Medicaid benefits provided the proceeds from the sale remain in trust.
A transfer of your home into an irrevocable trust is considered a gift under current Medicaid law, however. Such a gift would result in a penalty period of ineligibility for Medicaid benefits if nursing home care is needed within 5 years of completing the transfer.
PROTECTING YOUR HOME WITH A RETAINED LIFE ESTATE
A transfer of your primary residence subject to your retention of a life estate involves transferring your home to another individual while retaining the right to live in the premises during your lifetime. You will retain all real estate tax exemptions during your lifetime and upon your death, the individual(s) to whom you transferred the property will automatically receive the property with certain tax advantages. A transfer with a retained life estate, however, may adversely affect your ability to maximize your capital gains exclusion on the sale of the property during your lifetime. Additionally, the sale of the residence during your lifetime may adversely impact your eligibility for Medicaid benefits.
Depending on who the residence is transferred to, such a transfer with a retained life estate may be considered a gift under current Medicaid law. Such a gift would result in a penalty period of ineligibility for Medicaid benefits if nursing home care is needed within 5 years of completing the transfer.