Upon the passing of an individual that has received Medicaid a state in which the person lived can attempt to recoup costs from the person’s estate in the amount of whatever benefits were paid for the recipient’s care. This is known as an estate recovery, and for the majority of Medicaid recipients, a home is the only asset available. However, there are steps that homeowners can take to protect their homes from estate recovery.
Setting up a life estate
This can be the simplest and most appropriate way to protect a home from Medicaid estate recovery. A life estate is a form of joint ownership between two or more people. There is more than one person with an ownership interest in the property, but this ownership interest is for different periods of time. The person currently holding a life estate possesses the property for the rest of his or her life. The additional owner has a current ownership interest but cannot take possession until the end of the life which will occur at the death of the estate holder.
As an example, a homeowner can give a remainder interest in the property to their children while retaining a life interest in the property for themselves. This is carried out through a simple deed and the life estate holder has the right to live in the property or rent it out and collect rent for their own profit. This life estate holder is still responsible for any cost maintenance and taxes on the home and the property cannot be sold to a third party by the life of stakeholder without the cooperation of any other interest holders in the property. In this example, it would be the children.
When the original homeowner that holds the life interest passes away the house does not go into probate and ownership automatically passes to the remaining interest holders on the property. Though the home is not included in this person’s probate estate it is still included in the taxable estate. This is where a potential downside can lie as a large property may be subject to state taxation but this can also mean a huge reduction in tax on capital gains when the new owner sells the property.
This strategy can hold off any Medicaid estate recovery as the lies that estate cannot recover against the property for Medicaid expenses there any life estate holder may have incurred.
An alternative method to protecting a home against Medicaid estate recovery is to transfer it to an irrevocable trust. This can provide flexibility as compared to a life estate but can also be more complicated. When a home is in an irrevocable trust it can never be taken out. The home can be sold, but the profit needs to remain inside the trust. The trust can protect more of the value of the home when it is sold.
If you are of a certain age nearing the need for Medicaid it can be a good idea to look into the options of protecting your property against any Medicaid estate recovery. It is best to talk this over with a real estate attorney to help advise you on your best plans.
For more information on purchasing a home in San Tan Valley and surrounding areas please contact me anytime.
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