Using a Life Estate Deed to Protect the Family Home from Medicaid Recapture

October 12, 2020

There are many planning techniques that can benefit individuals seeking to find long-term care while also protecting a family home so it may be passed down to the next generation. The key is to plan ahead. Medicaid has a five-year look-back period where assets transferred during that window may be recaptured. The five-year period that precedes the date of your application for Medicaid is the time frame referred to as the look-back period.

In order for a patient to receive Medicaid assistance while in a nursing home they need only contribute to Medicaid the amount of their social security and other income. Medicaid will pick up the balance of the nursing home bill. The issue though is that upon the death of the patient, the state wants to be reimbursed for the entire amount it paid to the nursing home on their behalf. Effectively the government has made an interest-free loan and seeks repayment after death.

This can be very problematic if there is a home that the next generation wants to keep in the family. The elderly homeowner can still qualify for Medicaid since the home is considered exempt from being counted towards the assets considered on the Medicaid application. In order to qualify for Medicaid, a person can only have $2,000 of countable assets. The primary residence, regardless of value, is exempt and will not be counted. But as we mentioned before after the elderly person dies, the state will seek reimbursement from the deceased’s probate estate.

One asset protection strategy is to create a Life Estate Deed in which the owner retains a life estate and deeds the remainder interest to designated beneficiaries. This allows the senior to continue to own the house as long as he or she is alive and only at death will the heir(s) come into possession of the house. Since the ownership passes automatically to the beneficiaries it will not be probated so the state will not make a claim against the house. As the owner of a life estate, the individual continues to have full control over the property although it cannot be sold without the beneficiaries’ consent.

With this strategy, you still have to consider the five-year look-back. The signing of this deed will result in the senior making a gift to the beneficiary of the remainder interest in the house. An experienced Maryland probate attorney can help you calculate the amount of that remainder interest based on a pre-determined formula. If you are looking for a strategy to save a family home while still helping an elderly family member qualify for Medicaid, contact the attorneys at Stouffer Legal in the Greater Baltimore area.

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