You or your spouse is in a nursing home. You have spent down your assets on nursing home care except for your home. Will you be able to keep your home? The answer is a qualified, maybe.
There are certain assets that you can keep and still have Medicaid pay for your nursing home care. These are called excludable or exempt assets. Exempt assets include certain pre-paid funeral and burial expenses, one automobile and life insurance with a cash value less than $1,500 and your home.
The largest exempt asset for most people is the home. In order to be exempt, your home must have an equity value of $500,000 or less. In addition, your home must be titled and used properly.
To be exempt, a home must be titled in the name of a living person and not to a trust or corporation. It generally does not matter if your spouse’s or children’s names are also on the deed as joint owners. The entire value of the home would generally still be considered yours no matter how long the other joint owners were on the deed. There are other special rules regarding joint owners, life estates and remainder interests that we do not have room to discuss.
If your home is owned by your revocable living trust, it is not an exempt asset, but a countable asset. You must deed your home out of your trust and into your individual name prior to your Medicaid application.
Medicaid has complex rules to determine how much you can have in countable assets. If you exceed these limits you are denied Medicaid coverage for nursing home care. There are lengthy formulas depending on if you are married or single, and if married, if one or both of your are in a nursing home. To avoid this quandary, it is best to re-title your home to make it an exempt asset.
But what is considered your home? Your home is generally considered your house, the land upon which it sits and all of your surrounding or adjoining land. Adjoining land means land which is not completely separated from the home by land owned by someone else. Adjoining land, however, may be separated by rivers, easements and public rights-of-way (example: utility lines and roads).
For most people, $500,000 of equity is plenty. However, if you own farmland with any acreage, your land value alone can exceed the $500,000. Is there something you can do to make the home exempt?
The simplest way to get your home equity value below $500,000 is to take out a mortgage loan. Because properly written and recorded liens are deducted from the value of the homestead, you may be able to get the equity value below $500,000. Your home would then be exempt. Once the home is exempt, then you would spend down the proceeds of the mortgage loan on family friendly options discussed previously (6/13/10).
It is generally not a good idea to rent out your home or part of your home because you can create a countable asset out of an asset that had previously been exempt. Rental real estate is generally considered a countable asset.
Some people think, “I’ll just do a quit claim deed to get my house out of my name, then it is not counted against me.” Unfortunately, if you have done this within five years of your Medicaid application, that transfer would be considered a divestment, which would create a penalty period during which time Medicaid would not cover your nursing home care.
Unless you have a crystal ball and are certain you will not need nursing home care for five years, do not do a quit claim deed. A better option is to use a transfer on death deed in which your property only passes to your designated beneficiary(ies) upon your death.
There are several types of transfer on death deeds. One type that I use is called a ladybird deed. This deed basically allows you to stay in your home during your lifetime, but after your death, ownership shifts to your designated beneficiary(ies). With this type of deed, you still have the ability to sell or transfer the property during your lifetime. Because of this, it is not considered any type of divestment during your lifetime.
So what if your house is still countable? If you put it up for sale, you may still be ok. If you have been unable to sell your home, it may be considered exempt under the non-saleable asset rules provided by the Michigan Department of Human Services. To be non-saleable, you must be attempting to sell your home. The selling attempt is generally documented by having the home listed for at least ninety days prior to the Medicaid application and having received no reasonable offers.
Your home would continue to be exempt during the period that it is non-saleable. However, if a reasonable offer is received, your home is immediately valued at the sale price and is no longer considered an exempt asset. Your home is now a countable asset. Better to delay the classification of countable assets and the resulting Medicaid disqualification until you have liquid dollars with which to work.
The examples discussed in this article are only a partial list of the Medicaid rules affecting your home. As you can see, although your home is generally an exempt asset, there are many exceptions.
It is not uncommon for someone to apply for Medicaid thinking that their home is exempt, when it is not. This then unfortunately can result in months of Medicaid ineligibility and substantial nursing home bills for you and your family.
When planning for Medicaid to pay for your nursing home care, if you have concerns about assets being exempt or countable, don’t just apply for Medicaid and hope for the best. In such instances, you should consult with a knowledgeable legal specialist with experience in elder law and Medicaid qualification.
By Matthew M. Wallace, CPA, JD
Published edited June 20, 2010 in The Times Herald newspaper, Port Huron, Michigan as: Home not always out of Medicaid’s grasp