1

Understand How Estate Recovery Works

Benefits paid by Medicaid for skilled nursing care or for personal care services at the assisted living level are estate recoverable by the Medicaid program in North Carolina. The way estate recovery works is the individual that received benefits was able to do so while owning a primary residence and a vehicle. These assets end up in the estate of that person at death. The State of North Carolina Third Party Recovery Department files a claim against the estate, like a credit card company or other creditor. In order to pay this claim, the Representative must sell the property in the estate, i.e. the real property or automobile. The estate could not be closed without the payment of this claim.

2

Understand Real Property Law

The primary way to avoid estate recovery is to retitle the property in some manner. Retitling is completed by deed transfer and in North Carolina can be interests ranging from the entire property to a less than one percent interest. Another interest that is popular and effective to protect real property from estate recovery is the transfer of a remainder interest. A remainder interest is the future right to possess the property at the death of the life estate holder, usually the individual in need of Medicaid benefits. As the life estate terminates and extinguishes immediately upon death there is nothing left in the estate for there to be estate recovery. The value of the remainder interest is not the full value of the property, but is a percentage of the value as calculated using the actuarial tables of the Medicaid manual.

3

Understand Asset Transfer Restrictions of Medicaid

In North Carolina, the transfer of assets causes significant sanction if transferred within the five year period prior to the application for Medicaid benefits. Deeding even the smallest interest to another is a transfer of value. If it is transferred without the receipt of equal value in cash or property, it is sanctionable and will cause ineligibility for benefits. Therefore selecting the appropriate deed strategy is necessary to avoid sanction if it is anticipated that Medicaid benefits could be needed in the five years post transfer.

4

Understand Tax Law

Transferring value in property to another can cause significant tax consequences to the grantor and/or the grantee. A gift is not taxable to the recipient, but if it exceeds certain values it could be gift taxable to the grantor. When property is gifted in full, the recipient receives the property at the basis held by the grantor. This means if your parents give you their house, you will get it at the cost they paid for it in 1950. If you then sold it, during their life or after death, you would have to report a large capital gain on that sale. This can be avoided by using other deed constructs to preserve the step up in basis at death of the grantor, such as the remainder deed described above.

5

Merge These Concepts

A successful merge of these concepts, rules, and the application of them to your situation will determine the appropriate method to retitle the real property to avoid Medicaid estate recovery. In some states, including North Carolina, there are ways to protect real property that do not cause a sanction period. There is risk to any transfer, whether it causes sanction or not, which must be evaluated and disclosed for the proper decision to be made by the family.