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Protect Your Home
Many people want to know what will happen to their house if they have to go to a nursing home. They are afraid they will have to sell the house to pay for their care or the nursing home will take their house or Medicaid will take their house. None of these things are true, as long as you are alive. But to preserve your house for your heirs, you do need to plan because Medicaid may cause its loss after you die.
YOUR HOME IS EXEMPT
This means that for Medicaid purposes your house (up to $552,000 in equity-2015 or unlimited if a spouse is living there) is not counted as an asset when you apply for Medicaid. Therefore you can keep your home and still have Medicaid pay for your nursing home costs. It also means that you don’t have to sell the house to pay the nursing home before you can get Medicaid.
If Medicaid has paid for your care, at all, it will submit a bill for repayment to your Estate in Probate Court. This is where you could lose the house. If your house is in your Probate estate so that it can pass under your Will, it might have to be sold to pay Medicaid’s claim.
THE KEY: NO PROBATE
It sounds easy. It can be, but not the way many think. Some people add their children as joint owners. A VERY bad idea for a lot of reasons. Some will use a Revocable Living Trust, but it doesn’t work for Medicaid. Some might deed the house over to the kids now, but that can have a Medicaid penalty and bad tax consequences.
The answer is an Enhanced Life Estate Deed. This deed goes by many names: Ladybird Deed, Granai Deed, Italian Deed, Medicaid Deed, Beneficiary Deed, Reserved Life Estate Deed, etc. They are all the same basic thing. It keeps the house in your name during your lifetime, exempt from Medicaid. It passes your house to your kids when you die, without Probate and free of Medicaid’s claim.
HOW IT WORKS
Great! Well, it does, but here is some more info. In the deed you retain for yourself the right to live in the house for life and in addition all the powers you currently have over it, you can mortgage it, sell it or rent it and keep all the proceeds. You can change your mind and give it to someone else. But, if you die still owning the house, it automatically belongs to the people you named in the deed. Medicaid says that since you can do what you want with the house as long as you are alive, you haven’t given anything away (and they are right), which means no Medicaid penalty. Because the house automatically goes to your heirs without Probate, Medicaid can’t submit a claim.
BENEFITS FOR YOU
You continue to control the property as long as you are alive. You can sell and buy something else, you can change your mind and do a new deed, all without the kid’s joining in the deeds.You must still pay the taxes but you can claim any tax rebates you might qualify for. And the house is not in danger of your kid’s creditors.
KID’S BENEFIT TOO
There are even benefits for your kid’s with this deed, beyond just preserving the house for them. When you die and they get the property, they get a new tax basis, the value at the time of your death. This means that when they sell, they should have little or no capital gains tax. And there is no Gift tax, Estate tax or Income tax issue with this arrangement.
Yes, well there is one downside, but a minor one, and more for your kids than you. If you are in a nursing home, and your spouse is not still living at home, you will have to use all your income to pay the bill there before Medicaid will pay. You cannot use any of your money to pay for your house (taxes, insurance, etc.). In that event the kid’s might have to pay the ongoing expenses to preserve the house. Usually it is worth it, and someone will step up and make that investment to insure that the house passes to them on your death.