If you sell your house and immediately purchase a new one which is your principal residence you are converting one exempt asset for another. Medicaid can put a lien on the new house. If you hang on to the money rather than immediately reinvest in a new home you are converting an exempt asset into a countable resource and that can disqualify you for Medicaid. There are several different types of trusts that are used when dealing with Medicaid and you haven't specified what kind you have. Your best and safest course of action now is to consult in private with an elder law attorney whose does Medicaid planning to make sure everything goes smoothly. You can locate an elder law attorney using the AVVO Find a Lawyer search tool.
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I agree with Kelly on the law but I think you will lose Medicaid or suffer other negative consequences if you don't work with an elder law attorney. It should be possible to protect some or all sale proceeds but that would require compliance with complex Medicaid rules.
Lawrence Friedman, Bridgewater, NJ. Certified as an Elder Law Attorney by the ABA approved National Elder Law Foundation, former Chair NJ State Bar Association Elder and Disabilities Law Section, Member Board of Consultors of NJSBA Real Property, Trusts & Estates Law Section, Vice Chair Special Needs Law Section of National Academy of Elder Law Attorneys, and Master of Laws (LL.M.) in Taxation from N.Y.U. School of Law. Visit SpecialNeedsNJ.com for articles and Q&A on elder law, special needs, wills, trusts, estates, and tax. Visit SpecialNeedsNJ.com/blog and subscribe for free timely updates to be delivered to your inbox. Information on both Avvo and SpecialNeedsNJ.com does not constitute legal advice, as it is general in nature and may not apply to your situation or be subject to important changes. No attorney client relationship exists unless set forth in written engagement terms.