PROTECT YOUR HOME FROM MEDICAID LIENS
More and more senior citizens are becoming concerned about nursing home costs. No one really wants to go to a nursing home. Nearly every elderly person would prefer to stay at home. However, no matter how much children love their parents, caring for an elderly parent at home can be so stressful that a stay in a nursing home often becomes necessary. A Kaiser Family Foundation Survey in 2003 found that if you are 65 years of age or older, there is a 45% chance that you will spend some time in a nursing home. The average nursing home stay is 2.4 years.
Medicaid is the most common way of paying for nursing home costs. When you apply for Medicaid for nursing home costs, they will count your assets to see if you qualify. They do not count the value of your home. However, there is a trap here. Even though the Medicaid rules say that your home is an “exempt” asset which is not counted when you apply for Medicaid, once you are on Medicaid, they may be able to put a lien on your home. A lien is like a mortgage. It will guarantee that the government will be paid back money that they pay for your nursing home costs.
For example, suppose you have to spend the last 3 years of your life in a nursing home. Suppose you have very little in assets besides your home. Medicaid pays your nursing home bills, but puts a Medicaid lien on your home. At a cost of $9,000 per month, your nursing home stay could cost $324,000! After you pass away, you owe to the government the entire amount they paid for you. The government will approach your children who are hoping to inherit the home. They will give your children a chance to go to a bank to borrow the money to pay off the amounts Medicaid paid for your nursing home costs. If your children want to keep the home, they are forced to buy it. If they cannot afford to do that, the government could sell the home, and keep the proceeds from the sale, up to the amount that is owed to them. If there is any money left over after all expenses, your children get to keep the extra.
Because of the great danger of losing the home to nursing home costs, it becomes important to understand how you can protect your home from Medicaid liens. The first thing to remember is that a Revocable Living Trust will not protect your home from nursing home costs! This is one of the most common misunderstandings. Many people have a “living trust” and think they are safe. A living trust (also called Revocable Living Trust) will protect your assets from probate, but it will not protect from nursing home costs.
The government will not place a lien on your home as long as your spouse is living in the home. The danger is that the spouse who is living in the home could die first, or also end up in a nursing home. Then the home is no longer protected from Medicaid liens. This kind of problem can be prevented by advance planning. In my opinion, the best method for protecting the home from nursing home costs is for the parents to give the home to the children, but to keep a “life estate.” A “life estate” means that the parents can live in the home for the rest of their lives. Yet, they have given the home to the children. (For those of you who do not have children, I apologize for always talking about children. This technique will work just as well with a niece or nephew or anyone else you choose to inherit your home.) In next month’s column, I will explain in more detail how this life estate method works.
OKURA & ASSOCIATES, 2010
can the “surviving spoiuse give the house to the children and stay in the house untill she dies”
will avoid mmedicaid l iens,
Can the transfer be done even if the house has a mortgagge of 80,000.00
cordially miriam egan
I have just learned that a catastophic illness trust can protect your home and assets and qualify for medicaid to provide for long term care. What are your thoughts on this?
@Judy – Good question. It depends on the terms of the “Catastrophic Illness Trust.” Regardless of what a trust is named, whether or not the trust will protect assets from nursing home costs depends on the structure and terms of the trust. If it is an irrevocable trust in which the settlor is not a beneficiary, and if it meets with the other Hawaii requirements to be deemed an irrevocable trust for Medicaid purposes, then yes, it can protect assets from nursing home costs. In fact we often use such an irrevocable trust as the grantee that receives title to the remainder interest while the settler retains the life estate. Assets that go into such a trust are no longer accessible to the settlor. That is why we would still want to have the settlor retain a life estate in the residence. Also, remember that if the settlor applies for Medicaid for nursing home costs within 5 years after transferring any asset to such a trust, there will be a penalty period during which Medicaid will not help, even if the person’s assets are below the maximum allowed.
@miriam – Yes, the surviving spouse can give the house to the children and stay in the house until she dies. The safest way to do this is for the surviving spouse to give the home to the children, or to an irrevocable trust for the benefit of the children, but to retain a life estate. If she applies for Medicaid for nursing home costs within 5 years, there will be a Medicaid penalty (a number of months during which Medicaid will not pay for her care). However, if she doesn’t apply for Medicaid for nursing home costs until 5 yerars go by, then the home is safe. The government will place a Medicaid lien on the life estate, but as long as the property is not sold while the lien is on it, after the surviving spouse passes away, we can get the government to release the lien, and the children will own the property free of the lien. If the house has a mortgage on it, it depends on the bank or credit union as to whether they will allow the transfer. Some banks will allow it; some will not. Check with your particular bank. If you discover that your bank will not allow it, check with me. I have made arrangements with a local bank which will refinance your loan allowing the transfer, but for a higher interest rate than the current normal rate. Tomorrow (April 16, 2010) I will be posting a blog that goes into much more depth on life estates in an article that will be entitled Protect Your Home From Medicaid Liens (Part 2).
My husband is not well and we own our home free and clear we are looking for the best way to protect our home and any monies we would get when we sell from any nursing home liens in the furture. Also how many years ahead of either one of us entering a nursing home do we have to take care of this? We would like to either give or sell our house to our 2 children for a $1.00 draw up legal paperwork, but if neither of us go into a nursing home before we want to sell and move into housing for the elderly. Can this be done.
If a medicaid recipient has a life interest (“life estate”) in the home and title is held by the adult child who was the caregiver prior to being placed in a nursing facility, can the adult child have her child and grandchild move into the subject home while the medicaid recipient is in the nursing home without jeopardizing future medicaid subsidies? If this is allowed without jeopardizing future ability to get medicaid for further care in the nursing facility, will there be financial penalties enforced on the medicaid receipient and/or the adult child for allowing family to live in the subject property while the medicaid recipient is in the nursing facility? Thank you.
I just found out that my unmarried, childless uncle took, what we think is a Medicaid lien to cover his medical expenses. He cannot find the paperwork and doesn’t remember who he talked to to get this “benefit” and now I am working to try to find out how much I might have to pay to keep the property in the family if he dies. Is there any way to do find out more information on what type of lien or if it even was a Medicaid related issue?
Thank you
@monast – The federal law on Medicaid for nursing home costs call for a 5 year “look-back” period, which most states follow. The look back period means that when a person applies for Medicaid to pay for nursing home costs, the government will look backwards 5 years from the month of application to see whether any assets were transferred either by the applicant or by the applicant’s spouse without receiving full fair market value for the transfer. If there was any such transfer, the government will impose a penalty, which is a period of months during which Medicaid benefits will not be given. The reasoning of the government is that you could have used the assets to pay for your husband’s nursing home costs, instead of giving them away. Therefore, Medicaid will not help you for the period of time during which you could have used those assets to pay for your husband’s care, had you not given those assets away. In Hawaii, the rule is that for every $8,850 of assets transferred within the last 5 years, there will be a one month penalty (waiting) period. Each state has its own figure for the calculation. Also, it is possible that some states may use a look-back period of more than 5 years, so it is important to check the rules in your particular state. If the look-back period is 5 years in your state, then you should do your planning more than 5 years before you or your husband will need nursing home help. Selling your home to your children for $1 does not help, because you will have been deemed to have given the full fair market value of the home to your children, and there will be a lengthy penalty period. A better technique is to transfer your home to an irrevocable trust for the benefit of the children, while retaining a life estate to you and your husband. The life estate is ownership of the home for the rest of your lives. However, if after transferring the home and retaining a life estate you ever sell the home while one of you is living, 1) you will need the cooperation of the trustee of the irrevocable trust (who can be one of your children) to sell the home; and 2) the money from the sale of the home will be split between you and the trust for the children. I strongly recommend that you consult with a reputable and experienced Elder Law Attorney in your state who has personal experience with the life estate technique.
@Chris – In the State of Hawaii, my experience has been that family members such as a child and grandchild can move into the home while the Medicaid recipient is in the nursing home, without jeopardizing the Medicaid benefits. Having a family member living in the home is probably the best idea, because to leave the home vacant could subject it to vandalism and deterioration, and renting out the home causes problems. I have never heard of the State imposing financial penalties on the Medicaid recipient or on the family members for allowing the family members to live there.
@Aleeya – Yes, it is possible to find out what type of lien was placed on the property. Liens are recorded in the Bureau of Conveyances in the State of Hawaii. In states in the mainland, they are recorded in the county recorder’s office. A sure way to find out if there is a lien on a property is to obtain a title report from a title company. However, this can be expensive. In Hawaii, a title search usually costs about $300. A less expensive way, if the property is in Hawaii, is to hire a company called Docutrieve, located in Honolulu, to find a copy of the lien document for you. They can usually give you a cost estimate first, and usually, they only charge a few dollars. If the property is in a mainland state, I would ask an experienced realtor or escrow officer for the best, least expensive way to get a copy of a lien on a parcel of property. You will need to provide the tax map key (TMK) number of the property (in Hawaii) or the assessor parcel number (APN) in other states. Your uncle should probably make an appointment with for an estate planning consultation.