How to Keep Your Family Home From Going Toward Nursing Home Costs

KEY TAKEAWAYS

• Medicaid may cover nursing home care, but estate recovery can target your home later.

• Adding someone to the deed alone may not protect your home from Medicaid claims.

• Life estates can trigger tax issues and possible Medicaid ineligibility periods.

• Medicaid Asset Protection Trusts can help shield the home from estate recovery.

• These trusts allow continued home use while preserving assets for heirs.

• Early planning helps reduce tax exposure and protect long-term family wealth.

If you or someone you love requires nursing home care, you don’t have to put your house on the market to qualify for Medicaid to pay for long-term care. However, that doesn't mean that Medicaid won’t come calling later to recoup the costs of treatment. Once you are approved for Medicaid, the state may put a lien on your assets during your lifetime and call in the debt once you have passed away. This process is known as "estate recovery” and can lead to the loss of many assets that would have been passed down to future generations—including the family home. By working with an elder lawyer as soon as possible, you may be able to preserve your home, your income, and a greater portion of your estate for your heirs.

Understanding Estate Recovery

If you’re on Medicaid and still own your home, the Office of the Medicaid Inspector General is required to seek repayment from the estates of certain Medicaid recipients when they die. This financial recovery only applies to those recipients who were age 55 or older or permanently institutionalized at a medical facility when they died. Permanently institutionalized is an inpatient in a nursing facility, in an intermediate care facility for individuals with intellectual disabilities, or in another such medical institution, and who is not reasonably expected to be discharged from the medical institution or facility and return home. 

Medicaid recovery payments may include the following:

• Home and community-based services
• Nursing facility services
• Hospital costs
• Physician and prescription drug services
• Fixed, recurring monthly fees paid by state governments to private insurance companies to cover healthcare needs of people enrolled in Medicaid

Medicaid may also place a lien against the property of a deceased Medicaid recipient if one wasn’t already placed during the recipient’s lifetime. 

How a Medicaid Asset Protection Trust May Help Save Your Home

A Medicaid Asset Protection Trust (MAPT) is an irrevocable trust created while you’re alive that can be used if you or your spouse believes you’ll need long-term care at some point in the future. This type of trust is often used as part of a strategy to help ensure you can qualify for Medicaid but still keep your home. When you transfer assets into a MAPT, Medicaid doesn’t count them toward your resource limit when determining whether you qualify for Medicaid benefits. This can include your home. Because there are strict rules when establishing an irrevocable trust, it’s important to work with our elder law attorneys to help ensure it’s set up properly.

One Primary Benefit of a MAPT

While there are many advantages to creating a MAPT, one primary benefit is to enable a person to qualify for Medicaid coverage while preserving their estate for future beneficiaries. If a person who exceeded the wealth threshold wanted to qualify for coverage but did not set up a Medicaid trust, they would likely have to spend their assets on care until they were depleted and then apply for Medicaid. 

Critical Rules When Establishing a MAPT

It’s important to understand the following two rules for establishing a MAPT:

1. Medicaid has a five-year “look back” period where all your financial transactions will be scrutinized. Medicaid looks at your financial past to make sure you haven’t given money away or assets to someone to appear that you have less money than you’re reporting. To meet the look-back period, Medicaid will check to see that:
   • You haven’t made large financial gifts to others, including grandchildren or charities
   • You haven’t transferred property or a house to family members
   • You haven’t sold a vehicle or an asset for less than its current market value

If Medicaid finds that you placed your home or any asset into the MAPT within the last five years, you may be subject to a penalty. This penalty will delay Medicaid coverage, and you’ll have to pay for your long-term care out of pocket.

2. You’ll have to give up all control of your MAPT and its assets to a trustee. This person will manage all the assets and money in the trust, so you need to choose someone you trust. Likely, you’ll designate a family member, although this person cannot be your spouse. Giving up control means:
   • The trust holds the legal title to the property on behalf of the trust. You retain a "life estate," meaning your right to live in the home is legally guaranteed, and the trustee cannot evict you or force you out.
   • If the home needs to be sold, the trustee executes the sale on behalf of the trust.
   • If the home is sold, the trustee manages the proceeds. To maintain Medicaid eligibility, those proceeds usually must be reinvested into another primary residence or kept within the strict rules of the trust.

Adding Someone to the Deed May Not Be Enough to Save Your House

People often believe that by adding another owner on the deed to their home (called a life estate), the home cannot be used to pay back Medicaid. Unfortunately, this method won’t be enough to fully protect the home, for a few reasons:

• If the home is sold before the Medicaid recipient passes away, the value of the home must be paid towards their care. 
• If the family decides to rent out the house, the net rental income is recoverable by the nursing facility, since it technically belongs to the recipient. 
• While the house avoids probate after the recipient passes away, there may be significant capital gains taxes for the beneficiaries. 
• If you retain a life estate by transferring the deed to your home, you may incur a Medicaid ineligibility period of up to five years.

Other Benefits of a Medicaid Asset Protection Trust for the Home

When you establish a MAPT, the appointed trustee (usually an adult child) retains control of the principal, while the Medicaid recipient can only access the income from a pension or Social Security benefits. A MAPT may be a solid method for protecting the home if you:

• Want to continue living in the home. These trusts offer little to no disruption to a recipient’s life since they keep the exclusive right to use and occupy the home during their lifetime (and continue to receive all the tax exemptions on the home).
• Are not going directly into care. Any assets transferred into a Medicaid trust are subject to a lookback period of up to five years. You can still live at home (and may even be able to receive in-home nursing care) after five years, but if you need to go into a nursing home, the full value of your assets in the trust are protected. Even if you end up needing long-term care earlier than you thought, you get credit for any time that has passed since the creation of the trust. For example, if you created the trust today but need nursing home care after only three years, then you would only have to pay for two years out of pocket.
• Are considering selling the house. You always have the option to sell your house without a Medicaid penalty, because the money is paid to the trust. The trustee may also buy a new property (such as a smaller home) in the name of the trust so it remains protected.
• Want to avoid undue taxation. The Internal Revenue Service (IRS) allows a “step-up” in your cost basis for your home after your passing, so your beneficiaries won’t have to pay capital gains taxes when they sell the home.

Speak to an Elder Law Attorney Today

If you need help applying for Medicaid, the attorneys at Landskind & Ricaforte Law Group, P.C., can help ease your burden. Simply fill out our quick contact form or call us today to have us explain your options.