There are a number of potential COA's in trying to "protect" your home and still qualify for medicaid. This article discusses several options.
-- By K. Gabriel Heiser, Attorney
"Should I put the kids' names on the deed?" "Should I take my wife's name off the deed?" "Should I just sell the house now?"
These and similar questions are some of the most important that clients ask me, because they relate to the single biggest asset of most people applying for Medicaid, i.e., the family home. So, what is the best way to title the house?
If you are married, it is almost always best to title the house in the sole name of the Community Spouse (i.e., the healthy spouse). If it is currently in the joint names of both spouses, a new deed will have to be drawn up to accomplish this, which both spouses will need to sign. This is where you'll be glad if the nursing home spouse signed a power of attorney allowing someone else to sign the deed on her behalf. Without this, if the nursing home spouse is unable to understand the nature of the deed, she cannot legally sign it, and the only way to transfer the property would be to have a conservator appointed for her and to get court approval. That's both expensive and time consuming.
When a child's name is added to the deed, the parent has made a gift to the child, of a percentage interest in the house. The presumption is that adding one child to a deed gives the child a 50% interest. So if the house is worth $250,000, adding one child to the deed makes a gift of $125,000 to that child. Such gift will then cause disqualification from Medicaid eligibility for a number of months, and if either spouse applies for Medicaid within five years of the gift, the penalty won't start running until the date of Medicaid application.
The downside of adding a child's name to the parent's house deed is that if that child is divorced or sued, the ex-spouse or creditor may be able to attach the child's interest in the house. That could force a sale of the house, putting the parents out on the street! So there is some risk to doing this.
A better solution is to deed a "remainder interest" to a child (or children). This simply means that the current owner of the house signs a deed that says the child only gets title to the house upon the death of the parent. Until that time, the parent retains the absolute right to live in the house. So no divorcing child or creditor of the child can force a sale of the house. Upon the parent's death, the child automatically owns 100% interest in the house.
The gift of the remainder interest described above also causes a gift to be made: the older the parent, the higher the percentage gift (it's less than 50% until the parent reaches age 77).
Selling the house converts what would otherwise be an exempt asset into countable cash. However, sometimes this is the best solution, since it allows the family to make gifts of part of the cash and use the balance in a Medicaid-friendly annuity, or utilize other planning techniques, that would not be available if the house were not sold.
As you can see, the answer is not so simple! As usual with such things, the correct solution depends on the interaction of many factors: the total assets of the husband and wife, their living expenses outside the nursing home, expected nursing home costs, how long until they may enter the nursing home, the health and life expectancy of each spouse, whether they really want to retain the "old homestead" or are willing to sell it, and the value of the house itself.
To decide on the best solution today, while preserving flexibility should circumstances change, the entire family may need to sit down with an experienced elder law attorney, go over all the options, and come up with a plan of action.
K. Gabriel Heiser is an attorney with over 25 years experience in elder law and estate planning. Heiser is the author of “How to Protect Your Family's Assets from Devastating Nursing Home Costs: Medicaid Secrets,” an annually updated practical guide for the layperson. For more information about this book, visit Medicaid Secrets.
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