Merely qualifying for Medicaid is not enough if upon your death your family will have to pay back the state every dime of benefits they paid out on your behalf during your lifetime. There must be some planning techniques you can implement, right? Some "secrets" to avoid that harsh rule? Let's take a look at a few...
First of all, in states where recovery of benefits paid ("estate recovery") is only made by a claim against your probate estate (so-called "probate estate only" states), all you need be sure of is that the Medicaid recipient has no probate estate at death. Thus, the recipient should only own assets in POD, TOD, joint ownership with right of survivorship, annuity, etc., form. This is similar to those "avoid probate" techniques, except that you cannot use a living trust: any asset titled in the name of a living trust will be a "countable" asset for Medicaid purposes, even if it's ordinarily "non-countable" were it not in the trust.
For example, you can title an automobile in joint names with a child. So the car would be titled as "Mary Smith and John Smith, JTWROS." John is Mary's son, and upon Mary's death, sole title to the car passes automatically to him outside of probate. "JTWROS" stands for "joint tenants with right of survivorship." (Be sure to check your state's motor vehicle titling rules to be sure this will work in your state!) Since one car of any value is exempt during Mary's lifetime, it's protected during her life and escapes estate recovery on her death.
The same approach can even be taken for her house. Since a Medicaid recipient's house is normally exempt during lifetime (up to $500,000 in equity value), it's only at the recipient's death that there's a problem. So to avoid the house being included in the parent's probate estate, once again you can title the house as JTRWOS. CAUTION: Adding another person's name to the deed is a gift of an interest in the house, effective upon the date of the deed! Thus, when Mary has her attorney add her son John's name to the deed, she has just made a gift of 50% of the house to him. Although gift tax is rarely an issue, it should be considered. More importantly, though, is that this is a Medicaid-disqualifying transfer, with a large penalty attached. If Mary wants to go this route, she may be unable to apply for Medicaid for five years after she signs the deed.
Also, what if John is sued or divorced? Mary may still think of the entire house as "hers," but the creditor or divorcing spouse will view that 50% interest in the house as an asset of John's, and it could be subject to attack. Mary may find herself out on the street if the house has to be sold to satisfy the judgement or divorce settlement.
Some states permit adding another person to the deed by giving them less than 50%, which could reduce the amount of the gift, but that is something only your attorney can determine for you. Sometimes what the rule is for real estate law differs from the rule for Medicaid purposes. So, a word to the wise: be sure that the attorney who is doing the new deed for you is up-to-date on the effect that will have on your Medicaid eligibility!
In my other articles on this topic we'll look at some other ways to plan for estate recovery.
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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