Protecting Your Assets
For many of our clients, their home is their most valuable asset. Pabian & Russell's experienced elder law attorneys are here to advise you and your family on how best to protect this and other hard-earned assets from the rising costs of long-term care. We will also provide guidance and cost-effective solutions for minimizing capital gains and estate taxes.
Medicaid's Rules Regarding Primary Residences
A Medicaid applicant's primary residence is usually not counted as an asset when determining their eligibility. This does not mean, however, that their home is protected. When an applicant is approved for benefits, MassHealth can place a Medicaid lien on the primary residence. The government may then seek reimbursement for nursing home care if the property is sold during the recipient's lifetime, or at the time of death for payments made on the recipient's behalf.
Fortunately, for married applicants the solution is easy. Couples may transfer a primary residence to the community spouse at the last minute without penalty and avoid a Medicaid lien. For single individuals the situation is more complicated, and in a crisis situation a lien may be unavoidable. With advanced planning, however, unmarried clients can protect their home by transferring the property into an irrevocable asset protection trust or by transferring a remainder interest in the property to a family member while retaining a life estate.
These life estate and irrevocable trust strategies protect an individual’s right to live in the property during his or her lifetime, and they allow for the right to receive income from the property if it’s ever rented. The major disadvantage of transferring property into an irrevocable trust or life estate is that the transfer will make applicants ineligible for Medicaid benefits for up to five years.
Medicaid Ineligibility and The Lookback Period
Medicaid imposes an ineligibility period if an applicant or their spouse gives away assets before entering a nursing home. This is true regardless of the type of asset gifted or its value. Medicaid’s transfer rules are complicated, and without careful guidance from a skilled elder law attorney you may inadvertently make yourself or your spouse ineligible for Medicaid benefits for many years.
Medicaid applicants are required to disclose all of their financial records and gifts for the past five years. This is referred to as Medicaid’s "lookback period". Applicants must list and verify all asset transfers during this five year period, and may be ineligible for benefits until Medicaid’s penalty period has expired.
MassHealth’s penalty period is calculated using a divisor based on the average monthly cost of nursing homes in Massachusetts. MassHealth’s current penalty divisor is approximately $8,500 per month. This figure increases annually to reflect increasing nursing home costs. If you were to transfer $100,000 of your assets to an heir or a trust, you become ineligible for Medicaid coverage for a period equal to $100,000 ÷ $8,500 = 11.76, or approximately 12 months. However, the ineligibility period does not begin until you are in a nursing home and otherwise spent down to the Medicaid limit. Pabian & Russell attorneys will help you navigate the Medicaid bureaucracy while protecting your family’s financial security.
Asset Transfer Rule Exceptions
Note that there are exceptions to Medicaid’s Asset Transfer Rules. Specifically, transferring assets to the following recipients will not trigger a penalty period:
- A spouse
- A blind or disabled child
- A trust for the benefit of a blind or disabled child
- A trust for the benefit of a disabled individual under age 65, even for the benefit of the applicant under certain circumstances.
In addition to the exceptions listed above, Medicaid applicants may also freely transfer their primary residence to:
- A child of the applicant under age 21
- A sibling who lived in the home the year preceding the applicant's institutionalization, and who shares an equity interest in the home
- A "caretaker child" of the applicant who has lived in the house for at least two years prior to the applicant's institutionalization and who during that time, provided care so that the applicant did not need to move to a nursing home.
It is very important to work with an experienced elder law attorney if you are considering transferring assets or making gifts. Because Medicaid only considers transfers made during the five year lookback period, there is an effective cap of five years on ineligibility. Without proper planning, the ineligibility period could extend far beyond five years. Pabian & Russell will help you avoid this trap.
Contact an elder law attorney at Pabian & Russell today to discuss effective strategies for the transfer and protection of your assets.