04 Sep 10 WAYS TO PROTECT MY HOME (OR SALES PROCEEDS) FROM MEDICAID ESTATE RECOVERY
Although most Texas homes are a non-countable resource (if equity is under $603,000 as of January 1, 2021 if you are single, unlimited if you are married for Medicaid applicants) for long-term care Medicaid eligibility purposes, the state usually has a right to make a claim against the Medicaid recipient’s estate after the Medicaid recipient’s death to the extent Medicaid benefits (typically nursing home costs, caregiver expenses, medication, etc.) were advanced by the state. Since the homestead is normally the most valuable resource that does not count for eligibility, it is the most typical asset that the state makes a claim for reimbursement. Some of the ways to avoid a successful claim against the homestead are as follows:
- LADYBIRD DEEDS – the state has a right to make a claim on assets that pass by probate or by intestate (without a will) succession. This type of enhanced life estate deed (which can be done in several ways) avoids probate and intestate succession and does not result in a transfer penalty even if signed within five years from the date of Medicaid application. As long as this is done before the Medicaid recipient’s death, it should avoid a successful claim.
- TRANSFER ON DEATH DEEDS – this type of deed also avoids probate and a successful claim by the state for recovery of Medicaid benefits advanced. However, this type of deed cannot be signed by an agent under a power of attorney (unlike a Ladybird Deed) and does not insure from title issues of prior owners.
- TRANSFER TO A DISABLED CHILD – transfers to a disabled child are an exception to the transfer penalty rules (normally a transfer within the five–year look-back period prior to the Medicaid application). However, the basis of the property must be considered since there could be adverse capital gains taxes when the disabled person sells the property (the donee takes the basis of the donor). In addition, consider the type of disability and the type of public benefits the disabled person receives.
- SURVIVAL BY SPOUSE – if you are survived by a spouse, it avoids a successful claim against the home either at the Medicaid recipient’s death or at the death of the surviving spouse unless the surviving spouse was also on Medicaid (which can be cured by single or joint Ladybird Deed, Transfer on Death Deed, etc.).
- TRANSFER YOUR HOME DURING YOUR LIFE TO YOUR SPOUSE – since there is no transfer penalty between spouses, sometimes (consider other issues such as second marriage, appreciation, etc. before you do this) it is best to transfer the home to the “well” or “community spouse” who then often does a new will with a special needs trust for the benefit of the disabled spouse so the house can be sold after the death of the community spouse and assets in the trust can be used to supplement Medicaid benefits for the disabled spouse if the disabled spouse is the survivor.
- SELL THE HOME AND PURCHASE OTHER EXEMPT RESOURCES OR MAKE EXEMPT TRANSFERS AFTER THE HOME IS SOLD – if the house is sold during the Medicaid recipient’s life, then other exempt assets, such as a pre-need funeral, can be purchased to get down to the applicable Medicaid resource limit. Also, certain transfers, such as to Uniform Transfer to Minors accounts (UTMA) or 529 (college education) accounts for children or grandchildren under 21 are not penalized and do not count as a resource.
- TRANSFER HOME TO A CARETAKER CHILD – if a child has taken care of their parent at the parent’s home for two years that prevented institutionalization, this is an exception to a successful claim by the state. As in 3 above, tax issues should be considered.
- HAVE YOUR UNMARRIED ADULT CHILD LIVE IN YOUR HOME – an unmarried living child who lives at your home for at least one year prior to your death is an exception under Texas law from a successful claim by the state.
- TRANSFER HOME TO A SIBLING WITH AN EQUITY INTEREST – if you transfer your home to a sibling who has an equity interest in the home who lives in the home at least one year before you go into a nursing home is also an exception to the transfer penalty rules.
- BE SURVIVED BY AN HEIR WITH LIMITED INCOME – if your heirs have low income (there is a chart based on three times the poverty level and family size), then it is an exception to a successful estate recovery claim by the state. Sometimes disclaimers to an heir with small income are used to prevent a successful claim.
Although this is not a complete list (i.e., undue hardships, using the judicial system, transferring your home to certain types of trusts, etc.), it does show that there are many ways to protect your home or its sales proceeds from a successful claim by the state. Since the home is often the biggest asset that needs protection, all options should be considered.