For many people, the Home is the most valuable asset they will ever own and is their central Nest Egg. Entering a Nursing Home is a difficult decision, but not knowing how it will effect your home value can make this choice almost impossible.
The average cost of a Nursing Home in Baltimore County can cost over $10,000.00 per month. The Nursing Home will generally suggest that you pay this fee until you have drained every savings or investment account you have. Once all of your savings have been exhausted, the nursing home will then begin to place liens on your home until there is no value left. At that time, you will be considered to be financially "indigent" and they will have you apply for Medicaid. Medicaid is a Federal Program funded through the State of Maryland to help then continue to pay for your Nursing Home stay.
The good news is that lawmakers in Maryland realize that this can be detrimental for a healthy spouse or for individuals who hope to return to healthy independent living and have put provisions in place to protect you. There are now laws in place to enable families to use a Trust to help with supplemental or special needs and they have allowed for a process where some assets can be gifted to your family. These are great options for us all but must be done properly and legally compliant. This is why taking the appropriate legal steps can help to protect the value in your home. Aside from the legal compliance, here are some of the additional issues people have when attempting to protect their home.
Transfers or gifts to others can become are a huge problem in qualifying for Medicaid, especially for the last 5 years leading up to when you need to qualify for help with Nursing Home payments. If an asset is transferred out of your name, and then you apply for Medicaid assistance with Nursing Home payments there will be a "Penalty Period" rendered. This could stop you from qualifying for months or even years. There is no limit to the amount of penalty the Medicaid auditors can apply to a gift or transfer.
Hypothetical: A man named Henry transferred his farm to his children 4 and a half years prior to entering the Nursing Home. He then had the Nursing Home apply for Medicaid and they rendered a 10 year penalty because of the transfer. If the Nursing Home waited to apply for another 5 months and a few days, there would have been no penalty rendered whatsoever but now that they have done something that they cannot undo. It's important to keep in mind that once a transfer is done, you've lost all control.
Some people think "I'll just put everything in my kids name", but when the parent passes away, and the child inherits the asset, the child looses what's called the "Step-up in Basis" and could be taxed on all capital gains from when the house was originally purchased. The child may also not get the Home Tax Credit if you transfer the home into the children's name and then sell it since the $200,000 (Individual) to $500,000 (Married) credit only applies when selling house if it is your principal residence.
Ownership of Real Property can be complicated to determine since Deeds to Property can be written in so many different ways. If the house is not owned or titled correctly and you've taken every step necessary to ensure the house is exempted as an asset for the purposes of Medicaid Qualification, a lien can still be placed on your house if money is owed to the Nursing Home. Additionally, if proper ownership or title isn't done correctly, your children's creditors could legally attach to your home.
We see this happen all the time with people like Susan. Susan thought it was a great idea to transfer title to her son, but he's now getting a divorce and her home is now subject to his divorce proceeding.
1. My House is Exempt
The Home is an "Exempted Asset" from the Medicaid look-back period but is not a protected asset a lien can be placed on your home if it is not property titled or protected.
2. Life Estates will Protect my House
Protection from a Life Estate power deeded to someone else depends on the kind of Life Estate and how it was drafted. Additionally, Maryland has rules on how this Life Estate can be valued against the penalty period. It also is not protected from the creditors or predators of the person to whom you've bestowed the Life Estate powers.
3. Give House to your Children
Transferring your home to avoid Medicaid could cause a penalty period when you apply, but also doesn't protect your house from unintended tax consequences and potential creditors, predators, or divorce proceedings your child may have.