Today let’s explore the interplay between Medicaid and home ownership. Medicaid may not seem relevant; after all, you’ll probably qualify for Medicare when you reach the age of 65. Although we understand this impulse, let’s consider how you might use Medicaid as part of an estate plan. We’ll also take a look at Medicaid reimbursement, and how that may affect your estate and home ownership.
We’ll start with some background, then move to an examination of Medicaid eligibility for homeowners.
Long-Term Care for Seniors
It can be hard to wrap your head around the need for living assistance, especially when you have always been active and self-sufficient. Unfortunately we all face the possibility of a reduction in our physical capabilities as we age. Statistics show that over 50 percent of seniors will eventually need some type of paid living assistance.
According to the United States Department of Health and Human Services, 48% of people who require paid care will need such assistance for less than a year. 19% will require such care for one to two years, and 21% will receive paid care for between two and five years. Approximately 12% of elders who pay for help with daily activities incur the bills for more than five years.
So, to recap, that’s: 48% for less than a year. 19% for 1-2 years. 21% for 2-5 years. ~12% for more than 5 years.
Genworth Financial is a company that sells financial products for senior citizens, so they monitor the state of long-term care costs around the country. According to their research, the median annual charge for a home health aide in the Austin, Texas area was $54,912 recently.
We must also consider potential costs of $51,000 for a one-bedroom unit in an assisted living facility, or a $84,680 median annual charge for a private room in a nursing home.
Many people are surprised by the expense of this care. Another nasty surprise is this: Medicare generally does not pay for custodial care. However, there is a potential solution in the form of Medicaid eligibility. Medicaid has more of an emphasis on long-term care.
Home Ownership and Estate Recovery
Now that we’re seeing the relevance of Medicaid, let’s consider how it works. Since Medicaid is a need-based program, there is a $2000 limit on assets that are considered to be “countable.” A home is not a countable asset, but there is still an equity limit. In Texas, this limit was $603,000 in 2021.
Based on the above factors, we can see how you could gain eligibility as a homeowner. But what about other considerations?
One thing to think about is reimbursement. What does that mean? Medicaid is required to seek reimbursement from the estates of its beneficiaries. They can even place a lien on your home if you were a Medicaid beneficiary and the house was in your direct personal possession at the time of your death! However, there are some exceptions to the rule.
If a healthy spouse remains in your home, there will generally not be recovery efforts (on the home) while they are still alive. Please also note that there is no equity limit if an independent spouse is still going to be living in the home.
Further, your home would be protected if a minor child (or adult child who is disabled and/or blind) lived there.
There is also a “caregiver child” exemption. To explain through the use of an example, let’s say that your son is living with you. You are both living in your home, and he is providing sufficient care to keep you out of a nursing facility. He has been caring for you for more than two years.
What if you need nursing home care after he has been acting as your caregiver for at least two years? In that case, you could give the home to your son. It would be protected from Medicaid estate recovery!
Irrevocable Medicaid Trust
How can an estate planner use trusts as part of the strategy to protect your assets from the cost of nursing facility care? One option to consider is a “Medicaid Trust.” The utilization of an irrevocable Medicaid Trust means that, although you could not access the principal after you fund the trust, you could benefit from distributions of the trust’s earnings.
The assets in the trust would not count if you apply for Medicaid. There is, however, an important stipulation: the “look-back period.” This period covers five years, so the funding must take place at least 60 months before you seek Medicaid eligibility.
If you divest yourself of assets within this five-year window, your eligibility will be suspended. This period of ineligibility is based on state costs vs the amount of care you could have afforded with the transferred assets. Put simply– how much care was the value of this asset worth? Your period of ineligibility is a period of time equivalent to the value of the asset, based around the cost of care.
We Are Here to Help!
Don’t have a care plan? Would you like to talk your situation over with an attorney? You can schedule a consultation at our office if you call us at 512-258-9455. Alternatively, you can use our contact form if you’d like to send us a message.