States can go after the assets of people 55 and older who have relied on government-funded medical services. Do states actually wield this authority? If they do, can people protect their homes from these recovery actions? Here are the basics to explore with your estate planning expert.
What Medicare Recipients Need to Know
Medicare, as a rule, does not cover long-term care settings. So, Medicare in general presents no challenge to your clear home title.
Most people in care settings pay for care themselves. After a while, some deplete their liquid assets and qualify for Medicaid assistance.
Check your state website to learn about qualifications for Medicaid. If you are likely to return home after a period of care, or your spouse or dependents live in the home, the state generally cannot take your home in order to recover payments.
What Medicaid Recipients Need to Know
Our population is getting older. And long-term care isn’t getting any cheaper. People who can’t afford care can apply for Medicaid. Applicants may need to spend down to meet the limit. The limit varies by state, but is usually just $2,000 per person. Yet married applicants can transfer up to $126,420 in assets to a spouse under the Community Spouse Resource Allowance (state limits may vary). The value of the applicant’s primary home isn’t counted if the spouse lives in it and the couple’s home equity is not more than $585,000 ($878,000 in some states; California imposes no limit).
Your home is also shielded from recovery if a spouse or sibling has an equity interest in it, and has lived in it for the legally specified time, or if it’s the home of a child who is under 21 or lives with a disability. But Medicaid may try to recover funds at a future date, before your home is conveyed to a new owner.
The Federal Government Has Pressed People to Rely on Private Funds
Medicaid liens on homes have become common since the federal Omnibus Budget Reconciliation Act (OBRA) of 1993, which forces estate recovery if the homeowner:
- Relied on Medicaid at age 55+.
- Left the home, at any age, for a permanent care setting.
- Has no dependents with valid claims to the house.
States must recover for nursing, hospital, and drug services—or they forfeit federal Medicaid funding. States must recover from probate assets of the deceased. States may recover other assets. All states must offer Medicaid recipients the chance to apply for undue hardship waivers.
When Accepting Medical Assistance Means a Lien on the Home
A lien provides the right to take property to resolve an unpaid debt. Most people are familiar with liens on homes, especially the mortgage lien. After a lien is recorded by a county’s registry of deeds, title may not be transferred without the creditor’s knowledge. The creditor—and this might be Medicaid—can then claim the right to collect funds.
Medicaid uses two lien types: TEFRA, and estate recovery liens.
Under the Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982, states may prevent Medicaid recipients from giving away the home that they leave when they go into a long-term care setting. Intent to return home should be legally sufficient to keep the home an exempt asset. And states must dissolve TEFRA liens for Medicaid recipients who do go back home.
Homes that long-term Medicaid recipients try to transfer are considered available assets for state liens. And Medicaid gets first dibs—even over a mortgage lender. Should the homeowner die with the lien in place, Medicaid recovery becomes a part of probate. In many cases, an adult child of the deceased is forced to pay the Medicaid claim when taking title to a parent’s property.
When Probate Meets Medicaid
States may make claims on the estates of people who died in permanent care settings, and those of anyone who, aged 55+, accepted Medicaid benefits—wherever they lived. As noted above, these “post-death liens” come into play during probate. Yet there are states—notably Texas and Florida—that put certain interests of surviving loved ones ahead of liens, Medicaid included.
The main points to know are these. A state-imposed, post-death lien on a house occupied by the loved ones of a deceased recipient of Medicaid will get money back to the government, but not while a spouse or dependent/disabled child is still living—anywhere. And the spouse may sell the home, overriding the Medicaid lien.
Recovery is also barred when:
- A sibling has an equity interest in the home and has lived in it continuously since a year prior to the Medicaid application.
- An adult child lived in the home continuously, since at least two years before the deceased went into care, having helped the deceased to keep living at home for as long as possible.
Some states will then waive claims to future recovery. Call your Medicaid office to find out what your state does.
Transferring a Home With a Lady Bird Deed
Texas, Florida, Michigan, West Virginia, and Vermont have lady bird deed provisions.
Here’s how lady bird deeds can shield your home value.
Medicaid has a look-back period. The government scrutinizes asset transfers in the years leading up to a Medicaid application, looking for people who gave away assets or sold them at low prices to qualify for the Medicaid asset limit. People found to have done this will have to wait for their eligibility.
Yet with a lady bird deed, the homeowner keeps owning the home for life, and the beneficiary only takes title later. For this reason, using a lady bird deed to give away the home in the look-back period doesn’t count against the owner.
Finding a Supportive Community
Having supportive people around can sweeten our days and help seniors age in place. Many baby boomers find senior condo properties or co-op initiatives attractive. We’ll look at a few of the finer points next, as we explore the ways 55+ rules affect your property interest and your options for passing it on.