Protecting the Home When & After Applying for Medicaid Long Term Care
Depending on specific circumstances, one’s home can cause a Medicaid Long Term Care applicant to be ineligible. Furthermore, should they receive Medicaid-funded long term care, Medicaid may seek to recover care costs from the beneficiary’s estate, including their home, when they or their spouse passes away. This fact is particularly worrisome when family members are using the home or would have been dependent on the proceeds from the estate. Fortunately, if managed correctly, a family can protect their home during the application process, while an individual is receiving benefits, and after they pass away.
Home Protection Scenarios When Applying for Medicaid Long Term Care
Prior to a discussion of how to protect a home, one should understand the impact of home ownership on Medicaid eligibility. Medicaid has an asset limit, and in some cases, the home may be counted towards the limit, causing one to be ineligible. Furthermore, even if the home is exempt (not counted), it does not mean the home is protected from Medicaid’s estate recovery program (MERP) after a Medicaid beneficiary dies. Via MERP, which is mandatory in each state, the state Medicaid agency attempts reimbursement of long term care costs for which it paid for the deceased. This is done via one’s estate, and unfortunately, it is through one’s home that this reimbursement generally occurs.
There are three home protection scenarios that will be discussed in this article. In each of these scenarios, the home is generally safe from Medicaid’s asset limit. This is because the home is exempt, regardless of any other circumstances, when the applicant has their spouse, minor child, or disabled or blind child (of any age) living in the home. Therefore, for the most part, rather than focusing on how to protect the home from the asset limit, the focus will be on protecting the home from Medicaid’s estate recovery program.
1) When a Medicaid beneficiary lives in a nursing home and their spouse or other family member live in the home.
The home is protected from Medicaid’s estate recovery program when the Medicaid beneficiary’s spouse, minor child, or disabled or blind child (of any age) lives in the home. It is, however, possible that Medicaid will try to recover long-term care expenses when a minor child reaches the age of 21. Fortunately, this isn’t likely to happen often, as there is generally a limited amount of time in which Medicaid can initiate estate recovery. This timeframe is usually within one year of the Medicaid beneficiary’s death.
The home is not protected from estate recovery when a healthy adult child lives in it. There is one exception, which is the Caregiver Child Exemption. This is discussed below under Home Protection Strategies.
2) When a Medicaid beneficiary lives in a nursing home and their spouse who lives in the home passes away.
The home often remains exempt from Medicaid’s asset limit when the non-applicant spouse (the community spouse) in the home passes away, given specific criteria is met. First, the Medicaid beneficiary (the institutionalized spouse) must have an “intent to return” to the home. This means that if the beneficiary’s condition were to improve and they could return home, they would. Furthermore, with the exception of California, the beneficiary must have a home equity interest under a specific value. Equity interest is the value of the home minus any mortgage owed. The exact limit is state specific, but in 2022, it is usually $636,000 or $955,000. To avoid confusion, when the community spouse was living, there was no home equity interest limit.
If the home is not exempt, the value of the home will count towards Medicaid’s asset limit, causing the Medicaid beneficiary to be ineligible for Medicaid. In this case, the home will likely need to be sold and the proceeds used to pay for nursing home care until the money is “spent down” to the asset limit. It is critical that the home nor proceeds from selling one’s home be given away. This is because it would violate Medicaid’s look back period (more detail below) and would result in a period of Medicaid ineligibility.
In this situation, the home is not protected from Medicaid’s estate recovery program.
3) When a Medicaid beneficiary lives in a nursing home and they pass away while their spouse lives in the home.
As long as the non-Medicaid spouse lives in the home, it is protected from Medicaid’s estate recovery program. However, upon the death of that spouse, the state Medicaid agency may attempt reimbursement of long-term care costs paid for the deceased Medicaid spouse. Some states prohibit this from happening, and in those that don’t, there is usually a time limitation of a year following the Medicaid beneficiary’s death in which this can occur.
Home Protection Strategies When Applying for Medicaid Long Term Care
There are several Medicaid planning strategies that can be used to protect one’s home from Medicaid’s estate recovery program. When implementing a strategy, one has to proceed with caution. Some of these strategies are complicated and often the rules governing them are state specific. Furthermore, many strategies violate Medicaid’s look back rule. With this rule, Medicaid checks all asset transfers within 60 months (30 months in CA and NY) of long-term care Medicaid application to ensure no assets (including one’s home) were transferred for under fair market value. If this has occurred, Medicaid assumes it was done to meet Medicaid’s asset limit and the applicant is penalized with a period of Medicaid ineligibility. While not all strategies violate Medicaid’s look back rule, many do.
Medicaid Asset Protection Trusts
Medicaid Asset Protection Trusts (MAPTs) protect an applicant’s assets, including their home, from both Medicaid’s asset limit and Medicaid’s estate recovery program. This is because the transferred assets are no longer considered owned by the Medicaid applicant. To be a viable option, these trusts must be irrevocable. This means they cannot be changed or cancelled, nor can the assets in the trust be accessed by the applicant. A trustee, other than the applicant, is named to managed the trust. The reasons for which the trustee can access and use the trust funds is very limited. Unfortunately, this planning technique violates Medicaid’s look back rule and needs to be implemented well in advance of the need for Medicaid-funded long-term care.
A ladybird deed is a life estate deed that is a form of co-ownership that allows a Medicaid recipient’s primary home to automatically transfer to a beneficiary following their death. With a ladybird deed, the Medicaid recipient continues to be the home owner and maintains control over it. The beneficiary’s ownership does not begin until the Medicaid recipient’s death. Since ownership does not change until the Medicaid recipient passes away, a ladybird deed does not violate Medicaid’s look back rule.
A ladybird deed protects the home from Medicaid estate recovery by protecting it from going through a court process called probate. With probate, the deceased person’s will is validated, debts are paid, and any remaining estate, including their home, is transferred to named beneficiaries. With Medicaid estate recovery, some states only attempt reimbursement of long term care costs through probate. If the home does not go through probate, it is protected from estate recovery. Some states do not limit recovery to probate, and in those states, a ladybird deed does not protect one’s home from estate recovery.
Caregiver Child Exemption
The Caregiver Child Exemption, also called the Adult Child Caregiving Exemption, allows one’s home to be transferred to their healthy adult child without violating Medicaid’s look back rule if certain qualifications are met. This includes the adult child living with the parent for two years immediately preceding being admitted to an assisted living residence or a nursing home. Furthermore, the adult child must have provided a level of care consistent to that which either of these settings would provide. Essentially, with the Adult Child Caregiving Exemption, the adult child is compensated with the home for providing care for the parent and delaying the need for Medicaid-funded long-term care.
Consult a Medicaid Planner
The best course of action to protect one’s home from Medicaid is to work with a Medicaid planner. These professionals are well skilled and knowledgeable in implementing planning tools to protect the home in all stages of the Medicaid process. While the planning strategies and Medicaid estate recovery program have general rules across all states, many rules are state-specific. Unfortunately, if one is not aware of them, it could result in Medicaid ineligibility or failure to protect one’s home from Medicaid’s estate recovery program. Ideally, planning strategies should to be implemented well in advance of the need for care, as some violate Medicaid’s look back rule. When long-term care Medicaid is needed immediately, there may be some workarounds, of which Medicaid planners would also be aware.