Sep 17, 2015

What happens to your home when you need Medicaid?

Clients who seek Medicaid nursing home benefits for a loved one are frequently  concerned, and almost always confused, about what will happen to the applicant's home. Common questions include, Must the applicant's home be sold in order to receive Medicaid benefits? Will Medicaid put a lien on the home and take it after the Medicaid recipient passes away? Can it be protected so that the children inherit it? What about the well spouse who is living there?

Below I provide some general answers to these questions. But a note of caution: General information is just that. The rules governing the treatment of the house are staggeringly complex, and each family's specific fact pattern will govern what can and can't be done with the house. Many factors must be assessed, including whether there is a spouse or someone else living in the home, whether it is homestead property, the family's finances, the home's value, whether there is a desire to keep it in the family, and much more.

Put another way, figuring out how to deal with the house is a like a chess game.  Every move relates to the prior move and affects the next, and all the moves have to be synchronized, in advance, to produce the desired outcome. That's where  a board-certified elder law attorney must assist you. This is one area in which you need a chess master to guide you!

One more caveat: The rules below apply to Florida Medicaid. If you move out of state or have property out of state, don't count on these same rules applying. 

Will Florida Medicaid force the sale of the house?

If the Florida home is the applicant's homestead property, it is considered exempt, and Medicaid benefits will be awarded to an otherwise qualified applicant so long as the following conditions are met:
  1. The applicant intends to return home. Medicaid presumes that the applicant intends to return to the homestead, even though doing so may be realistically impossible, physically and medically. That presumption stands unless the Medicaid recipient takes affirmative action that demonstrates otherwise - for example, renting the home. (I deal with this issue in greater detail later in this post.)                  
  2. One of these additional conditions must be met:
  • The equity in the house is $552,000.00 or less. (Effective Jan. 1, 2015 - the figure changes each January). Home equity is determined by subtracting any debt from the current fair market value of the home;  OR 
  • The residents of the home include one or more of the following: the applicant's spouse, the applicant's child under age of 21, or the applicant's blind or disabled child of any age.

Will Medicaid have a lien on the house after the Medicaid recipient passes away? 

Not necessarily. Federal law requires each state's Medicaid department to recover assets from the estate of a deceased beneficiary. However, in Florida, Medicaid is treated like any other creditor and cannot have a lien against the homestead of a deceased Medicaid recipient, provided that both these conditions are met:
  1. The home is still legally homestead property when the Medicaid recipient passes away.                                                                  
  2. The property is bequeathed, through the deceased Medicaid recipient's will or trust, to one or more "constitutional heirs at law." Constitutional heirs at law include spouse, children, grandchildren, siblings, nieces or nephews, but not charities, in-laws or friends. 
To protect the house from Medicaid recovery, it's typically advisable for a family to hang on to the home while the Medicaid recipient is alive. Of course, this is not always feasible.

Can the home be rented without jeopardizing Medicaid benefits? 

A Medicaid recipient may not have assets over $2,000. Moreover, all of the Medicaid recipient's income, except for $105 per month, is considered the patient's responsibility toward the cost of care and must be turned over to the nursing home. As a result, many families don't have the means to continue paying property taxes, insurance and any mortgage on the homestead, notwithstanding the advantages of retaining the house until  the Medicaid recipient's death. In this situation, other strategies may be available.

One strategy many clients wish to explore is renting out the property. However, this can be a risky option if not properly handled. As soon as the home is rented on a long-term basis, the presumption that the Medicaid recipient intends to return home is negated. The homestead  loses its exempt status. On the other hand, since rental property is considered a non-available asset for Medicaid purposes, renting the property, if properly handled, need not impact on Medicaid eligibility. 

Two significant issues arise in the event the home is converted into rental income property: The status of the rental income, and potential Medicaid recovery, since the property is no longer homestead. 
  1. Rental income: All expenses related to the maintenance of the property, such as taxes, insurance, maintenance and repairs, condo or HOA fees, and interest on mortgages, may be paid out of the rental income. The remaining income is deemed net income, Medicaid would treat it as such, and the Medicaid recipient would have to pay it to the nursing home as part of his/her patient responsibility. Furthermore, if the net income causes the applicant's income to exceed Medicaid's allowable income cap ($2,199 per month effective Jan. 1, 2015), a Qualified Income Trust would have to be created.                                                                                                      
  2. Medicaid recovery: Medicaid is required to recover what it has paid out for the Medicaid recipient, from the deceased recipient's probatable assets (except for exempt assets, such as homestead). Thus, it is necessary to ensure that the rental income property does not pass through probate. The simplest way to avoid probate without impacting the Medicaid recipient's eligibility is  to create an enhanced deed, also known as a ladybird deed. Upon the death of the owner, the property automatically passes to the designated beneficiary or beneficiaries named in the deed, thus avoiding probate and eliminating Medicaid recovery of the rental property.  

Can the house be sold without jeopardizing Medicaid benefits before, or after the person receives Medicaid benefits?

The answer depends on whether there is a well spouse.

  1. If there is a well spouse prior to the Medicaid application being filed, the property can be transferred to the well spouse without penalty, even if it is transferred during the look-back period. The well spouse can then sell the house and retain all of the proceeds. If the proceeds put the well spouse's assets above the legal limit for Medicaid ($199,220.00 effective Jan. 1, 2015), the well spouse would have a number of options to protect those funds so as not to impact on the applicant's Medicaid eligibility. One option is a technique called spousal refusal.                                                                                 
  2. If there is a well spouse residing in the house when the applicant has already been approved for Medicaid, the same steps mentioned above can be used - if the spousal refusal technique was not used prior in order to obtain Medicaid approval for the applicant. If spousal refusal was used, other methods may be available to secure the Medicaid recipient's continuing benefits.                                                  
  3. If there is no community spouse, there are numerous options to protect the proceeds of the sale, so as to maintain the Medicaid recipient's benefits, or to obtain benefits for the applicant. Those options are too numerous and too complex to mention here. And, of course, the options also depend on each family's specific circumstances.

Can I give the house to my children?

Some people ask if deeding the house to their children can protect the house without jeopardizing Medicaid benefits. 

If a potential Medicaid recipient deeds his/her homestead to his children anytime during the look-back period (currently 5 years preceding application for benefits), Medicaid will consider the transfer to be a gift. That will result in a penalty period during which  an otherwise eligible Medicaid applicant will be denied benefits. The value of the home is used to calculate the length of the penalty period. For more on penalty periods, click here

If the family's loved one is already in a nursing home and receiving Medicaid and the homestead is transferred to the children, that constitutes a substantial change in circumstances, and Medicaid must be alerted. If there is equity in the home, the equity would be considered an uncompensated transfer, and would terminate the nursing home resident's Medicaid benefits. However, if there was a legal exemption for the transfer - for example, transferring the home to a disabled adult child - there would be no penalty.

I hope this information has been helpful to my readers. I suspect it has also raised many questions. As I noted, this information is just a general road map. The direction you must take to secure, and retain, Medicaid benefits can be circuitous, and is different for every family. Please consult your Florida board-certified elder law attorney.

For detailed eligibility rules and more information on Florida Medicaid benefits for long-term nursing care, click here

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