Medicaid Estate Recovery Planning

Merely qualifying for Medicaid is not enough if upon your death your family will have to pay back the state every dime of benefits they paid out on your behalf during your lifetime. There must be some planning techniques you can implement, right? Some "secrets" to avoid that harsh rule? Let's take a look at a few...

First of all, in states where recovery of benefits paid ("estate recovery") is only made by a claim against your probate estate (so-called "probate estate only" states), all you need be sure of is that the Medicaid recipient has no probate estate at death. Thus, the recipient should only own assets in POD, TOD, joint ownership with right of survivorship, annuity, etc., form. This is similar to those "avoid probate" techniques, except that you cannot use a living trust: any asset titled in the name of a living trust will be a "countable" asset for Medicaid purposes, even if it's ordinarily "non-countable" were it not in the trust.

For example, you can title an automobile in joint names with a child. So the car would be titled as "Mary Smith and John Smith, JTWROS." John is Mary's son, and upon Mary's death, sole title to the car passes automatically to him outside of probate. "JTWROS" stands for "joint tenants with right of survivorship." (Be sure to check your state's motor vehicle titling rules to be sure this will work in your state!) Since one car of any value is exempt during Mary's lifetime, it's protected during her life and escapes estate recovery on her death.

The same approach can even be taken for her house. Since a Medicaid recipient's house is normally exempt during lifetime (up to $500,000 in equity value), it's only at the recipient's death that there's a problem. So to avoid the house being included in the parent's probate estate, once again you can title the house as JTRWOS. CAUTION: Adding another person's name to the deed is a gift of an interest in the house, effective upon the date of the deed! Thus, when Mary has her attorney add her son John's name to the deed, she has just made a gift of 50% of the house to him. Although gift tax is rarely an issue, it should be considered. More importantly, though, is that this is a Medicaid-disqualifying transfer, with a large penalty attached. If Mary wants to go this route, she may be unable to apply for Medicaid for five years after she signs the deed.

Also, what if John is sued or divorced? Mary may still think of the entire house as "hers," but the creditor or divorcing spouse will view that 50% interest in the house as an asset of John's, and it could be subject to attack. Mary may find herself out on the street if the house has to be sold to satisfy the judgement or divorce settlement.

Some states permit adding another person to the deed by giving them less than 50%, which could reduce the amount of the gift, but that is something only your attorney can determine for you. Sometimes what the rule is for real estate law differs from the rule for Medicaid purposes. So, a word to the wise: be sure that the attorney who is doing the new deed for you is up-to-date on the effect that will have on your Medicaid eligibility!

In my other articles on this topic we'll look at some other ways to plan for estate recovery.

K. Gabriel Heiser is an attorney with over 25 years experience in elder law and estate planning. Heiser is the author of “How to Protect Your Family's Assets from Devastating Nursing Home Costs: Medicaid Secrets,” an annually updated practical guide for the layperson. For more information about this book, visit Medicaid Secrets.

Medicaid Planning: Life Estate in House | Does the $13,000 Gift Tax Exemption apply to Medicaid? | Medicaid and Community Spouse Assets | Planning For Medicaid Coverage | Effect of Life Insurance Proceeds On Medicaid Eligibility | New Medicaid Annuity Rule Explained | How Can an Irrevocable Trust Be Used in Medicaid Planning? | Selling the House and Medicaid Qualification | How To Qualify For Medicaid If My House Is Worth More Than $500,000? | What is Elder Law? | Living Trust and Medicaid | What Is An Inheritor's Trust? | Should I Take Out a Loan Against My House to Pay For A Nursing Home? | Can I Give My House to My Child and Qualify for Medicaid? | Elder Care Lawyer Fees | Choosing A Nursing Home | Do I Need a Will? | Capacity To Sign a Will, Trust or Power of Attorney | Second Marriage Will Issues | Special Needs Trust Issues | What is a Common Law Marriage? | What is a Medicaid Annuity? | How does a Medicaid Annuity Work? | How To Protect My Home and Still Qualify for Medicaid? | Medicaid and Spousal Will Election | Do It Yourself Medicaid Planning | Medicaid Rules and Reverse Mortgages | How Does Life Insurance Policy Ownership Affect Medicaid Eligibility? | Medicaid Estate Recovery Rules | Limitations on Medicaid Estate Recovery | Do Medicaid Plans Work? | Nursing Home Costs and Payment Options | Don't Be Too Cheap! | What Happens to My Home If I Go On Medicaid? | Can Spouse Receiving Medicaid Pay Income to Community Spouse? | Will Medicaid Exempt My Home If I Leave It? | Tips for Discussing Wills and Powers of Attorney With Your Parents | Elderly Marriage Issues | Durable Power of Attorney Medicaid Considerations |

From Medicaid Estate Recovery Planning to Medicaid Questions | Estate Planning Blog | Basics of Estate Planning | Selecting a Financial Planner | Estate Planning and Taxes | Is This Good Time to Buy a House? | Incorporate My Business | Best Low Cost Investment | Fringe Benefit Plans | Estate Planning and Charitable Giving | Health Insurance Comparisons | Best Medicare Supplement Plan | Retirement and Estate Planning | What is a Power of Attorney? | Current Estate Planning News | Estate Planning Forum | Estate Planning Books | Choosing an Estate Planning Attorney | Find a Probate Attorney | Estate Planning Questions |