Posted On: January 2nd 2010
When people contemplate retirement, and the possibility of being on Medicaid, a major concern is losing the asset that was so hard to purchase and maintain: the home. Medicaid planning, when transferring title to a home, sets out to achieve several objectives, including avoiding The Medicaid Lien and The Right of Recovery.
According to 42 USCA section 1396p(1)(A) and (B); Social Services Law section 369(2)(a)(i) and (ii), the New York State Department of Health may impose a lien on real property on Medicaid correctly paid. This lien occurs when a Medicaid recipient becomes permanently institutionalized and is not reasonably expected to be discharged from the medical institution and return home. This reasonable expectation is based on the Medicaid recipient’s subjective (not objective expectation) intent to return home.
A lien would be imposed on the amount of Medicaid paid after six months in the institution, after this reasonable expectation test is met, unless an exempt person still resides in the home. If the Medicaid recipient is discharged from the institution, and returns to the home, the Medicaid lien is dissolved.
One way for the Medicaid recipient to demonstrate intent to return to their home would be to submit an affidavit of this intention with their Medicaid application. This affidavit would express the temporary nature of their stay in the institution and their intent to return home. If the client lacks sufficient capacity, you may consider having the client’s attorney-in-fact submit an affidavit combined with ample medical evidence that the client is expected to return home.
There are ways for Medicaid recipients to avoid having this lien imposed. If an exempt person still maintains residence in the home while the client is in the institution, a Medicaid Lien cannot be imposed on that home.
» The spouse of the client; or
» A child of the client who is certified blind, disabled, or under the age of 21; or
» A sibling of the client who owns an equity interest in the home and who was residing in the home for at least one year immediately before the client’s admission to the medical institution; or
» A child of the client who resided in the home for at least two years immediately prior to the date the client became institutionalized and provided care to the client, which allowed the client to remain at home rather than in a medical facility.
The client may elect to transfer the home to one of these exempt individuals up to 90 days after admission to a medical institution and still escape the imposition of a Medicaid Lien. In addition, Medicaid cannot recover from the client’s estate if the client is survived by on of these exempt persons.
The issue arises: what if you don’t have an exempt person in your life? Is there still a way to avoid the Medicaid Lien? The answer is yes. One option is for the single client to transfer the real property from their ownership to another party, but retain a life estate in the real property, since it will be subject to the Medicaid transfer penalty rules before the need for Medicaid. Medicaid cannot file a lien against a life estate. A life estate is not a countable resource for Medicaid eligibility. This life estate vehicle applies for the family home or other realty. Medicaid cannot force a sale of the life estate. However, if the life estate is sold, then life estate proceeds are an available resource for Medicaid eligibility and subject to recovery. Along the same lines, Medicaid cannot force the client to rent out the life estate. However, if the realty is rented, then the rent is subject to recovery as an available resource of the client.
» The sale of real property subject to a Medicaid lien of a Medicaid recipient who was permanently institutionalized during the Medicaid recipient’s lifetime or from the Medicaid recipient’s estate; or
» The estate of the Medicaid recipient who was fifty-five (55) years of age or older when the Medicaid recipient received Medicaid; or
» A legally responsible relative (typically the spouse) of sufficient ability to be responsible for the dependant’s care; or
» Personal injury claims; or
» A mandatory or discretionary beneficial income and/or principal interest in an Intervivos Trust or a Medicaid recipient or Medicaid recipient’s spouse.
» A second option is the New York State Partnership Long Term Care Policy. If a client has purchased a New York State Long Term Care Partnership insurance policy, which provides the client with three (3) years of nursing home benefits, or its equivalent, Medicaid cannot impose a lien or seek recovery from the client’s assets, (e.g. the home).
A third option is a transfer of title of the real property through a deed (or trust) that enables the client to retain a special power of appointment. This allows the client to alter, amend or terminate beneficial interest in the property to a specific class of beneficiaries, other than the client, the client’s estate or creditor’s of the client’s estate. When making transfers, you must consider the Medicaid transfer penalties.
DSS will look back three (3) years from the first day of the month of application of the client to identify uncompensated direct transfers and five (5) years for uncompensated trust related transfers. The penalty period is the number of months which an institutionalized individual can not qualify for Medicaid benefits from the date of transfer. This results from dividing the fair market value of the transferred property by the average monthly costs of nursing home care in the client’s geographic region. In Nassau county, the 2005 cost is $9,612. Therefore, if a client were to transfer a home to a non-exempt person with a fair market value of $300,000, the penalty period would be $300,000/$9,612 or 31.21 months. The client would therefore not be permitted to apply for Medicaid for 31.21 months from the date of transfer.
You can see by this example how important it is to start planning well in advance of when you apply for Medicaid, as home values in Nassau County will likely exceed $300,000 in the near future, if they haven’t already.
There are other issues to consider, such as the capital gains exclusion, who is entitled to use it upon sale of a principal residence, stepped-up and carry-over basis, and gifting. These issues and other concerns should be discussed with your tax advisor.