Most people who plan for long-term care plan to eventually become eligible for Medicaid. This is also true for people who have nursing home insurance, because those insurance benefits are usually capped at a certain number of days or a certain amount of money.
The type of Medicaid that covers nursing home care is commonly called “institutional Medicaid,” and it has similar sister programs for assisted living and in-home care, called assisted living waiver and passport, respectively.
Institutional Medicaid and its related programs have two big requirements: the applicant cannot have a financial net worth of over $2,000, and the applicant cannot have given anything away in the immediately preceding five years in order to become that poor.
The requirements are strict, but there are exceptions. If an applicant owns a home and sincerely intends to return home, Medicaid may not require that the home be sold in order for the applicant to be eligible for Medicaid.
Similarly, if an applicant owns a life estate (commonly called a life lease, even though a life lease is legally distinct) in real estate (like a house or farm) and the life estate is “not transferable,” the applicant may be eligible for Medicaid without having to sell the real estate.
These exceptions seem awesome on their face, and they can provide some tax benefits for the heirs of people on Medicaid. In fact, these exceptions are parts of some attorneys’ long-term care planning for clients.
However, as is often the case, the devil is in the details. Yes, someone can become eligible for Medicaid while still owning certain properties that are worth more than $2,000. However, Medicaid reserves the right (and almost always exercises the right) to place a lien on those properties once the Medicaid applicant dies.
Thus, someone may think, “This is great. Dad’s care is being paid by Medicaid, and Dad still owns his house. Thus, Dad’s house is safe.” This thought process is flawed, because Medicaid will almost certainly place a lien on the house after Dad dies, in order for Medicaid to be reimbursed for Medicaid’s payments for Dad’s care.
Under the last example, even if Dad’s heirs immediately sell the house after Dad’s death, the law allows Medicaid to place a lien on the house if the house is owned by unrelated people. Thus, new owners of the house in situations like this can and do file lawsuits against Dad’s heirs to pay the lien.
The same situation applies for life estates. Sure, a Medicaid applicant may not be required to sell property in which the applicant has a “non-transferable” life estate in order for Medicaid to pay for the applicant’s care, but Medicaid will place a lien on that property after the Medicaid recipient dies.
The only way to properly plan for Medicaid eligibility and still get the tax advantages of retaining ownership of real estate at death is to properly organize and fund an irrevocable trust, for which trust assets will not be eligible for Medicaid recovery after the Medicaid recipient dies.
Lee R. Schroeder is an Ohio licensed attorney at Schroeder Law LLC in Putnam County. He limits his practice to business, real estate, estate planning and agriculture issues in northwest Ohio. He can be reached at [email protected] or at 419-659-2058. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.
