You or your spouse cannot live at home anymore. You need assistance 24/7. You have no choice but to go into a nursing home. You were told, incorrectly, that you had to spend down your assets on nursing home care, except for your home, before Medicaid would pay for nursing home care. So you spent down all your other assets before you applied for Medicaid to pay for the nursing home.
You are now told that after you are gone, the state will have a claim on your home to pay back the Medicaid they paid for you during your lifetime. But you wanted to leave your home to your loved ones. Will they be able to keep your home? The answer is a qualified, maybe.
There are certain assets that you can keep during your lifetime 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, life insurance with a cash value less than $1,500 and your home. All other assets are considered countable assets.
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 you are in a nursing home.
The largest exempt asset for most people is your home. In order to be exempt, your home must have an equity value of $560,000 or less in 2017. In addition, your home must be titled and used properly. If your home is not titled or used properly, it is considered a countable asset.
But what is your home for Medicaid purposes? 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 like utility lines and roads.
For most people, $560,000 of home equity is plenty. However, if you own farmland with any acreage, your land value alone can quickly exceed the $560,000. Is there something you can do to make the home exempt?
The simplest way to get your home equity value below $536,000 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 $560,000. Your home and surrounding land would then be exempt.
Once the home is exempt, then you would spend down the proceeds of the mortgage loan on family-friendly Medicaid options we have discussed in previous columns. If you are married and only one of you are in the nursing home, if you have the right documents in place, you can protect all of the marital assets for the well spouse and have Medicaid pay for the nursing home spouse’s care. With proper planning, you do not have to spend down any of your countable assets on nursing home care.
If you are single in a nursing home, or married and both of you are in the nursing home, if you have the proper documents in place, you can generally protect not only your exempt assets for your loved ones, but also about half of your countable asset in addition.
If you are in a nursing home on Medicaid, 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 can guarantee you will not need nursing home care for five years, do not deed your home away during your lifetime. 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 typically use in these situations is called a ladybird deed. This deed basically allows you to stay in your home during your lifetime, but after your death, ownership transfers to your designated beneficiary(ies), without going through probate. With this type of deed, you still have the ability to mortgage, sell or transfer the property during your lifetime. Because of this, it is not considered any type of divestment and does not affect your Medicaid qualification.
Although your home is exempt while you are on Medicaid during your lifetime, if it is titled in your sole name and goes through probate after your death, it is then subject to Medicaid estate recovery. The home must be sold and the proceeds will then have to be used to pay back the state for Medicaid benefits paid on your behalf. If however you use a ladybird deed, not only is your home exempt during your lifetime, because it does not go through probate, it is also exempt and not subject to Medicaid estate recovery after your death.
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 March 19, 2017 in The Times Herald newspaper Port Huron, Michigan as: Protecting your house when you qualify for nursing home Medicaid