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In Medicaid Planning Part I we covered:

  • Income Annuity in the Name of the Community Spouse
  • Prepaid Funeral Instead of or in Addition to Burial Funds
  • Use of Spend Down Resources

Intent to Return Home

If a single person receiving Medicaid care in a facility has a house, that property could be subject to sale to pay for Medicaid expenses. The house is only protected if a qualifying child or dependent lives there or if the recipient intends on returning home. Some states require a medical doctor to certify a return home, but in many states it only requires the signature of the recipient whether that recipient has justification or not. In the states that allow it, always have your loved one sign an intent to return home. At least you have use of the property while your loved one is still alive.

Most families sell the home and end up with a large amount of cash that must be spent down before the loved one qualifies for Medicaid. Keeping the home avoids losing the entire value of it to spend down. By retaining the home, Medicaid recovery may not seek the full value of the home when the loved one dies.

Potential rental income from the house would also go towards paying the facility cost and reduce the amount that Medicaid would have to pick up. This could mean that Medicaid recovery using this strategy might go after a smaller share of its cost in the recovery process.

Medicaid Treatment of a Home

If the community spouse lives in the home then the home is exempt from determining Medicaid eligibility. It does not count as an asset and prevent the institutional spouse from receiving Medicaid help. On the other hand, any other real estate property, not the primary residence, will have to be converted to cash and spent down before Medicaid will start paying the bill.

If the community spouse living in the home does not in turn need Medicaid help in the future then one of two things can happen to the house after the death of the institutional spouse. Legally Medicaid has a claim against the property for recovery services. And in some states a lien against the property, called a TEFRA lien, can be filed in anticipation of Medicaid’s cost. The lien can be filed before the death of the care recipient but only a few states actually do that. States that have authority to file these liens often don’t do it until after the death. At the death of the community spouse, the property cannot be sold until the lien is satisfied, or the lien is satisfied from the proceeds of the sale.

Even though few states are efficient at Medicaid recovery, especially when it comes to a primary residence, you will be miles ahead of the game every time to contact and work with a competent adviser when dealing with recovery issues. You can never assume what your state recovery program will actually do.

Special Home Exemption Rule

It is often the case that a daughter will move in to take care of Mom or Dad or both. In this case Medicaid has a special leniency rule to allow transfer of the home to the daughter and not result in a penalty for a transfer for less than value. If the child provides care for a parent in a parent’s home for at least two years, and that care kept the recipient out of a nursing home, the property can be transferred to the child without penalty and the property will not be a subject asset for Medicaid recovery. Medicaid will require some proof of this. Typically an affidavit from a third-party care provider such as a doctor or an agency stipulating that the care was given for at least two years and resulted in keeping the care recipient out of a long-term care facility, will be sufficient evidence. It’s important to use a legal adviser to make sure you do this properly.

Joint Tenancy

Many people anticipating Medicaid services are tempted to put a child’s or sibling’s name on property titles to avoid probate and Medicaid recovery. This may not be a good idea.

There are at least four problems.

  • If the other person on the title becomes subject to a judgment, even one arising from an accident, then at least 50% of the property can be lost to the judgment.  This would also the case in a bankruptcy and there could a similar issue in a divorce proceeding.
  • The other person on the title must consent to any disposition of the property. He or she might not agree with what the original owner wants to do.
  • Re-doing the title must occur at least 5 years prior to claim in order to avoid look back rules and a sanction on a gift to a non spouse owner.
  • The person assuming joint ownership has received a gift and loses the step-up in basis at death. Capital gains taxes may have to be paid. And if the property is not the principal residence of the new tenant, the capital gains exclusion cannot be used either.

Good planning is no accident. All of the issues discussed above are best handled in advance. To secure your future care, get started now.