Merely being eligible for Medicaid isn’t enough if your family has to pay back to the state every penny of benefits they paid on your behalf during your lifetime when you die. There must be some planning techniques you can implement, right? Some “secrets” to avoid that hard rule? Let’s look at a few…
First, in states where recovery of benefits paid (“estate recovery”) is only made through a claim against your estate (so-called “probate estate only” states), you just need to be sure that the Medicaid recipient has no estate at death. Thus, the recipient may only own assets in the form of POD, TOD, co-ownership with right of survivorship, annuity, etc. This is similar to those “avoid probate” techniques, except that you cannot use a living trust: Any asset with the name of a living trust will be a “countable” asset for Medicaid purposes, even if it is usually “uncountable” if it is not in confidence.
That is possible, for example title a car in joint names with a child. So the car would be titled “Mary Smith and John Smith, JTWROS”. John is Mary’s son, and upon Mary’s death, sole title to the car automatically passes to him, outside of inheritance. “JTWROS” stands for “joint tenants with right of survival”. (Be sure to check your state’s motor vehicle title rules to make sure this works in your state!) Since one car of any value is exempt in Mary’s lifetime, it will be protected during her lifetime and escaped the restoration of the estate upon her death.
The same approach can even be taken for her home. Since a Medicaid recipient’s home is normally exempt during lifetime (up to $500,000 in equity), there is no problem until the recipient’s death. So to prevent the house from being re-incorporated into the parents’ estate you can name the house JTRWOS. PLEASE NOTE: Adding another person’s name to the deed is a gift of an interest in the house, effective on the date of the deed! So when Mary has her lawyer add her son John’s name to the deed, she has just donated 50% of the house to him. While gift tax is rarely an issue, it should still be considered. More importantly, this is a Medicaid disqualifying transfer, which carries a hefty fine. If Mary wants to go this route, she may not be able to apply for Medicaid five years after she signs the deed.
Also, what if John gets sued or divorced? Mary may still think the whole house is “hers,” but the creditor or divorcing spouse will view that 50% interest in the house as John’s property, and it can be attacked. Mary could be out on the street if the house has to be sold to meet the judgment or divorce settlement.
Some states allow adding another person to the deed by giving them less than 50%, which could reduce the amount of the gift, but that’s something only your attorney can determine for you. Sometimes the rule for real estate law differs from the rule for Medicaid purposes. So a word to the wise: make sure the attorney doing the new deed for you is aware of the effect it will have on your eligibility for Medicaid!
In my other articles on this topic, we’ll look at some other ways to plan for estate recovery.