Will the Nursing Home Take My Home?

Article submitted by Alan Jay Ackerman, an attorney with offices in Trevose and Philadelphia.
For more information, he can be reached at 215-245-2250.

One of the most frequently asked questions I hear is when people ask me if the nursing home is going to take my house. What happens is that after a person who received Medicaid dies, Harrisburg must attempt to recover, from his or her estate, an amount equal to whatever benefits Medicaid paid for his or her care. This is called "Estate Recovery." For many people, creation of a "life estate" is the 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 future or "remainder" interest in the property. He or she has a current ownership interest but cannot take possession until the person who holds the life estate dies. As with all transfers, your attorney will discuss with you what period in ineligibility for Medicaid will result from the partial transfer of the house.

As an example let's assume that Alice, a widow, transfers her house into a life estate. She keeps a lifetime interest in the house for herself and gives a remainder interest in her house to her children, John and Deborah. As the life estate holder, Alice has the right to reside in the house for as long as she lives. During her lifetime she's responsible for the costs of maintenance and the real estate taxes. In addition, the property cannot be sold to a third party without the cooperation of John and Deborah, the remainder interest holders.

When Alice dies, the house will not go through probate, since at her death the ownership will pass automatically to the holders of the remainder interest, John and Deborah. Although the property will not be included in Alice's probate estate, it will be included in her taxable estate. This can mean a significant reduction in taxes when John and Deborah sell the house because they will receive a "step up" in the property's basis.

Life estates are created by executing a deed conveying the remainder interest to another while retaining a life interest, as Alice did in this example. Once the house passes to John and Deborah, the state cannot recover against it for any Medicaid expenses Alice may have incurred.

Another method of protecting the home from estate recovery is to transfer it to an irrevocable trust. Trusts provide more flexibility than life estates but are somewhat more complicated. Once the house is in the irrevocable trust, it cannot be taken out again. Although it can be sold, the proceeds must remain in the trust. This can protect more of the value of the house if it is sold. On the other hand, since the entire house is transferred to the trust, rather than a partial ownership, the resulting period of ineligibility for Medicaid is longer -- up to five years.

Do you need an attorney for even "simple" Medicaid planning? This depends on your situation, but in most cases, the prudent answer would be "yes." The social worker at your mother's nursing home assigned to assist in preparing a Medicaid application for your mother knows a lot about the program, but maybe not the particular rule that applies in your case or the newest changes in the law. In addition, by the time you're applying for Medicaid, you may have missed out on significant planning opportunities.

To protect yourself and your family you should consult with a qualified attorney. At the very least, the price of the consultation should purchase some peace of mind. And what you learn can mean significant financial savings or better care for you or your loved one. As described above, this may involve the use of trusts, transfers of assets, purchase of annuities or increased income and resource allowances for the healthy spouse.

When should you consult a qualified attorney? The sooner the better. If you wait, it may be too late to take some steps available to preserve your assets.