As an attorney who helps people obtain Medicaid benefits to pay for nursing home care, I am often asked about what can be done in protecting your house from Medicaid estate recovery? After a Medicaid recipient dies, the state must attempt to recoup from his or her estate whatever benefits it paid for the recipient’s care. This is called “estate recovery.” For most Medicaid recipients, their house is the only asset available. In the first of a 2 part post, I provide some of the tools that can be legally used in protecting your house from Medicaid estate recover.
Life Estates
For many people, setting up a “enhanced life estate” (also called a Lady Bird Deed – Named after the former First Lady, Lady Bird Johnson) is the simplest and most appropriate alternative for protecting the home from estate recovery. A life estate is a form of joint ownership of property between two or more people. They each have an ownership interest in the property, but for different periods of time. The person holding the life estate possesses the property currently and for the rest of his or her life. The other owner has a current ownership interest but cannot take possession until the end of the life estate, which occurs at the death of the life estate holder.
Example: Joan gives a remainder interest in her house to her children, Jack and Bill, while retaining a life interest for herself. She carries this out through a simple deed. Thereafter, Joan, the life estate holder, has the right to live in the property or rent it out, collecting the rents for herself. On the other hand, she is responsible for the costs of maintenance and taxes on the property. In addition, the property cannot be sold to a third party without the cooperation of Jack and Bill, the remainder interest holders.
When Joan dies, the house will not go through probate, since at her death the ownership will pass automatically to the holders of the remainder interest, Jack and Bill. Although the property will not be included in Joan’s probate estate, it will be included in her taxable estate. The downside of this is that depending on the size of the estate and the state’s estate tax threshold, the property may be subject to estate taxation. The upside is that this can mean a significant reduction in the tax on capital gains when Jack and Bill sell the property because they will receive a “step up” in the property’s basis.
In the first of a 2 part post, I provide some some of the tools that can be legally used in protecting your house from Medicaid estate recover. If you are contemplating using Medicaid benefits to help finance nursing home care in Texas, call me. My firm has been helping Texas families for many years navigate the issues surrounding getting Medicaid benefits to pay for a family member’s nursing home care. We do not charge for the initial consultation so please contact me today if there are any questions you have about what needs to be done to get Medicaid benefits to help pay for nursing home care. The phone numbers to call are 1-866-KNOW.LAW (866-566-9529) (TOLL FREE) or 972-772-6100 or you can email me at jack@jackrobinson.com. If I cannot help you, there is no fee.
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