May, 2004

Medicaid 104

Over the last few months we have been talking about qualifying for Medicaid if you are ever placed in a nursing home.  Since you are only allowed to have a small amount of Countable Assets, the goal is to shift your money from Countable Assets into Noncountable ones.  But remember, even if you do qualify, that does not mean you are out of the woods when it comes to protecting your wealth.  Even if you are eligible for benefits because your Countable assets are under the $2,000 threshold, the State will still place a lien on your Noncountable assets, (i.e. your primary residence) so it can get its money back after you have died.

This aspect of estate planning is known as Estate Recovery.  And the bad news is that the new laws make it a whole lot harder for you to keep your assets after you are gone.  In fact, the State has significantly expanded its ability to go after your property when you die.  Before, they could only go after assets you held in your own name at the time of your death.  Now, the “estate” subject to recovery is broadened to include any interest you had in the property prior to your death, including joint ownership interests and life estates.

Since these are now given a value by Medicaid, that means the State is going to go after those assets, up to that value, when you die.  So what is your life estate worth?  That depends on how much the house is worth, and how old you are at the time of death.  A life estate in a mansion given to a 20 year old is worth a lot more than one in a shack held by an octogenarian.

No matter how you look at it, it is getting harder and harder to keep your assets in this eventuality.  But there is still plenty of room to work with, so if this is a likelihood, then planning now for it will make a huge difference in what you get to pass on to your children later.

WHAT ARE LIFE ESTATES?

A life estate simply says that you have the right to live in the house for the rest of your life, regardless of who owns it, or has liens on it.  It was a popular benefit parents reserved to themselves when they gave their house to their children in an effort to hide it from the nursing home.  This is because they knew their kids could lose the house even faster than themselves if they were to get divorced or run into their own financial difficulties.  With a Life Estate, the parents never have to worry about getting evicted just in case their idiot kids couldn’t hang onto the house for more than a fortnight.