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.
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.
Benefits of a Medicaid Asset Protection Trust for the Home
One of the best ways to protect your assets from the nursing home is to place them in a Medicaid Asset Protection Trust. These are commonly called “income only” trusts, since 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.
An asset protection trust may be a better 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.