In a previous article we addressed the state Medicaid recovery programs and how they typically go after the only remaining asset which is the home. In this article we will discuss some of the strategies that can be used to protect the home from Medicaid estate recovery. There are a number of strategies that can be used. In those states that go after probate property only, anything that keeps the house out of probate will suffice. In payday loans in TN other states, some common strategies include the use of irrevocable trusts or transfers before death.
Most of these strategies involve giving away ownership of the home. This creates a penalty either for a potential Medicaid application or for someone already on Medicaid whose name was on the property. There are also a number of strategies to deal with this penalty. The reason for creating a penalty through an outright gift or a trust is to start the five-year look back. Another reason might be to get the property out of the name of an aid and attendance applicant.
Transfer of the property as a gift, thereby creating a penalty, can be reversed in almost every state. In other words, if the consequences of a Medicaid penalty outweigh the advantages of gifting the property, the title is changed back into the name of the Medicaid beneficiary in order to allow that person to receive Medicaid benefits. In case the Medicaid beneficiary is incapacitated, a proper durable power of attorney that includes gifting rights must be set up in advance while the person was competent to do this.
Sell the House and Use Half a Loaf
Selling the house is generally only an option if a spouse or another member of the family does not need to live there. Selling the house might be an option for a single Medicaid beneficiary. Selling the home should be weighed against keeping the home as an exempt assets due to the Medicaid beneficiary signing an intent to return. The amount of recovery against the house depends on how much Medicaid has to pay for the beneficiary. If this is a sizable monthly amount it could add up quickly. Under these circumstances, over a period of a year or two, recovery could eat up the value of the home. If this is the case, the possibility of selling the home sometime prior to applying for Medicaid or shortly after applying for Medicaid should be considered. If the Medicaid obligation is not significant, perhaps the family could be satisfied with a recovery against the home.
Funds from the sale of the home will disqualify the Medicaid beneficiary until he or she has spent down to less than $2,000. However, a half a loaf gifting strategy could be used to transfer approximately 50% of the funds to someone else. This strategy might make sense for these reasons.
- Anticipated recovery against the house — which is currently exempt — will eat up its entire value fairly quickly
- Selling the home while the owner is alive takes advantage of the capital gains exclusion and reduces or eliminates the taxes owed on capital gains
Medicaid Recovery Where the Community Spouse Outlives the Nursing Home Spouse
In many states, if the community spouse is alive after the Medicaid beneficiary dies, the state will not attempt recovery even after the death of the community spouse. The home is always protected from recovery as long as the community spouse is alive whether he or she lives in the home or not.
In those states that attempt recovery, the community spouse, if healthy, can employ a number of gifting strategies. This is because Medicaid in these particular states cannot apply a lien against the house while the community spouse is alive and living in the home. This does not mean that if the state is entitled to recovery, it cannot pursue civil action. Whether this happens on a regular basis we don’t know.