Most Texans have inadequate income and resources or lack long-term care insurance to pay for the cost of long-term care (such as nursing home and assisted living care or care at home). As a result, they often use long-term care Medicaid to help pay for such costs since Medicare has very limited if any (depending on the facts) coverage.

Usually, the most valuable resource that doesn’t “count” toward the resource limit for Medicaid is the applicant’s homestead. However, the state has a right to be “paid back” to the extent that it paid for the facility care costs, caregivers at home, drugs, etc. Unless there is a surviving spouse or disabled child (which are exceptions to recovery by the state), the most common planning technique to avoid a successful claim by the state is for the Medicaid recipient to sign a Ladybird deed (which is an enhanced life estate deed) or a Transfer on Death Deed.

However some recipients fail to do any planning for a variety of reasons. Fortunately, some are able to fit within the exceptions to a successful state claim for recovery (click here to see our article on exceptions). 

Here are a couple of recent actual scenarios to utilize certain exceptions to the state’s claim:

  1. Mom (Medicaid recipient) has home worth $95,000. She is survived by two sons – neither are married nor have children. Neither lived in mom’s home. One of the sons has income less than 300% of the Federal Poverty Level. One of the exceptions to Medicaid Estate Recovery is if the home is $100,000 or less, then the heirs whose income is less than 300% of the Federal Poverty Level would be entitled to their share of the interest in the property as it would be considered an undue hardship. Since the state would have been able to recover against the interest in the home of the son whose income was greater than 300% of the Federal Poverty Level and since that son had no children, we simply had that son disclaim his interest so the entire property would be owned by the low-income child and thus avoiding a successful claim against the homestead.
  2. Another exception to a successful claim is if an unmarried adult child is living in the home for at least one year prior to the death of the Medicaid recipient. As part of the proof to meet the exception, the state requires a copy of the income tax return (which shows the address of the unmarried adult child) and proof of utility payments by the child for the homestead for that 12 month period to see if the adult lived there prior to the Medicaid recipient’s death. In our fact situation, although an unmarried adult child lived in the home for a year prior to the death of the Medicaid recipient, he did not pay for the utilities and his tax returns showed an old address. So, we simply had the accountant revise the unmarried adult child’s tax return to reflect the correct address and we had neighbors sign affidavits that he lived there over a year prior to his parent’s death (even though he didn’t pay the utilities).

It is best to do some simple planning, but sometimes a little creativity is all that is needed to avoid a successful claim by the state.

If interested in learning more about this article or other estate planning, Medicaid and public benefits planning, probate, etc., attend one of our free upcoming virtual Estate Planning Essentials workshops by clicking here or calling 214-720-0102.  We make it simple to attend and it is without obligation.

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