Your home is not counted as a resource for Medicaid purposes. If you own your home debt free, and will not need a reverse mortgage, and you want to make sure you leave something to your children, then you need to consider the following planning strategy.
This legal strategy is like having your cake and eating it too. The "having your cake" part is owning your home even if you are on Medicaid. The "eating it too" part is leaving your home to your children, even if you were on Medicaid, so the state cannot get it in estate recovery.
You convey to your kids or to a trust for their benefit the "future interest" in your home. You can be the trustee. The kids are the beneficiaries.
You keep the current interest while you are living, which is called a "life estate." For a husband and wife, they have a "life estate for their joint lives." The children have a future interest, which will become vested in them when the survivor of the couple passes.
The key to understanding this is to understand two things about Medicaid:
1. The state does not count your house for purposes of determining eligibility, and
2. The state can seek estate recovery and become owner of your home to recover their expenses on your behalf.
With that understanding, now you need to understand that you can give or deed or convey away the future interest in your home to your kids now, or to a trust for their benefit. If you do that, then in five years (which is the look-back period for Medicaid eligibility), you can honestly say that you have not given anything away within the past five years.
Therefore, you can be deemed eligible for Medicaid without penalty for having made a transfer within five years of death. You will keep a life estate, which is the full and absolute right to live there and collect rents while you are living.
Upon your death, the basis gets stepped up to date of death value. You still get the 4% special assessment while you are living and the homestead exemption.
This planning strategy is good for people who own their home debt free, know they will not need a reverse mortgage, and want to ensure something will be left to the kids in light of looming long term care costs, which can wreak havoc on the value of an estate.
Remember, for this to work, it must be done five years in advance of need. It is good planning for clients in their 70s and early 80s.
If you do this five years before you might need Medicaid, then the transfer of the future interest way will not be deemed a transfer that creates a penalty or period of non-coverage.
If the above strategy is coupled with a general durable power of attorney that allows the agent to do Medicaid planning, then you can be rest assured your children will inherit your home.
It's like having your cake and eating it too. Cake tastes better. But having a house in which to eat the cake is good too.
Mark F. Winn, J.D., Master of Laws (LL.M.) in estate planning, is a local asset protection, estate and elder law planning attorney. mwinnesq.com