This article discusses Medicaid as it impacts your primary residence.
PLANNING TO PROTECT YOUR PRIMARY RESIDENCEOne of the most rewarding parts of practicing law is having the opportunity to answer my family's estate planning questions. The other day I had the privilege of meeting with some of my extended family to do just that. For purposes of anonymity, we will call them Jim and Jayne. Jim and Jayne have two children who they want to receive equal shares of the primary residence. Jim and Jayne's attorney already drafted planning documents for them but their primary residence was still exposed to claims of creditors, namely, estate recovery efforts by the Department of Human Services if either spouse ends up receiving Medicaid assistance. We discussed Medicaid eligibility, exempt resources, exempt transfers, estate recovery and the ominous five-year look-back period.
Most are unaware that a primary residence is an exempt resource for purposes of Medicaid eligibility, but only if certain exceptions are met. However, the primary residence may still be subject to future estate recovery efforts unless the property is removed from the estate by titling the asset in the name of an irrevocable trust, thereby constructively removing a residence from any one individual's legal ownership and transferring that interest to a trust. The trust can contain provisions further transferring the property into separate trust shares for the children upon the last person to die, either Jim or Jayne, thereby further protecting the children's shares from their death, possibility of divorce, or any debt they may incur. Jim and Jayne immediately had questions, not least of which was, "How do the kids get their equitable share out of the property if they want to use that money?" Because the residence is not a liquid asset, the house would need to be sold and the shares distributed or, one child's share could be purchased by the other child. The remaining child could then keep the property in trust or the property could be liquidated. Either way, by utilizing the irrevocable trust, the asset is preserved for posterity and not consumed, in whole or in part, by The Department of Human Services' estate recovery efforts.
SummaryJim and Jayne left my office with a better understanding of options they have to ensure they will be eligible to receive Medicaid if ever the need arises. The cost of nursing care is approximately $300 per day, that's over $9,000 each month! Proper planning serves to preserve assets while ensuring eligibility for programs such as Medicaid to cover the exorbitant costs of care associated with old age and disability.