The last two of the five methods do create a penalty period and generally need to be done at least 5 years prior to any Medicaid application. The fourth method is a life estate deed, which is a deed recorded at the registry of deeds that indicates the home is the parents for life and then at the parent’s death the home automatically becomes child’s. For example, Mary Smith owns her home in her own name. She does a deed, Mary Smith for life and then remainder to her son, John Smith. Because the home passes directly to John at Mary’s death the transfer avoids probate and thus estate recovery. There are several drawbacks to this method. For several months in 2003, the State was trying to impose estate recovery on property passing via a life estate deed. While this bad law was repealed, we can never be sure it won’t come back. Next, Mary Smith cannot sell the home without John’s cooperation and signature. Also, John’s interest in the home is a public record and thus a known resource for his creditors. If John Smith gets sued and loses, gets divorced or goes through bankruptcy his creditors could attach his future right to inherit Mary’s home. No one can put Mary Smith out of the home, but if in the future she wanted to sell the home, she wouldn’t be able to without satisfying John’s creditors. Any sale would likely re-start a new 5 year penalty period.

The fifth method is an irrevocable trust. A trust is a legal entity whereby one person (known as the grantor) gives property to another person (known as the Trustee) to hold for the benefit of a third person (known as the beneficiary). There are many types of trusts and each can be very different than another. The Trustee must administer the trust according to the rules set up by the Grantor when the Grantor created the trust. In the Irrevocable Trust that we use to protect the home for Medicaid planning purposes, the Trustee holds the Grantor’s home for the benefit of the Grantor and perhaps others during his or her lifetime. After the Grantor’s death, the Trustee transfers the home to whomever the Grantor directed in the Trust. There are many variations on this central concept. There is a penalty period imposed on the Grantor when he puts the home into the Trust. Thus this method is best used at least 5 years prior to a nursing home stay.

The Trust is irrevocable so the Trustee is not allowed to give the home back to the Grantors. The Grantor’s rights in the home are usually limited to the right to occupy the home without any right to partition or sale. Generally, in the Irrevocable Trusts drafted in our office, the Trustee cannot sell the home without the written permission of the Grantor. This insures that the Grantor will always have a place to live. Estate recovery is avoided because the house does not pass through the Grantor’s probate estate. Unlike a life estate deed, the terms of the trust remain private and thus the property is usually not exposed to the claims of the Remainderman’s creditors. Also, the house can be sold from within the Trust and if done properly no new penalty period will be incurred. Last, if properly crafted the trust will be considered a grantor trust for income and estate tax purposes thus, the Grantor should still receive his $250,000 capital gain exclusion if the home is sold during life and the Remainderman should receive a step-up in basis in the property upon the Grantor’s death. Overall, an Irrevocable Trust provides much more protection and flexibility to the Grantor.

There are significant, Medicaid and tax consequences to changing the ownership of your home. Please consult a qualified elder law attorney before proceeding. If you are concerned about protecting your home from the costs of long term care, call our office for a FREE one hour consultation. We will review your situation and make recommendations for protecting your family from the high costs of nursing home care. Each individual’s situation is different. The ideas and concepts presented in this article are just a few of many. Never assume it’s too late or that nothing can be done to protect your assets.