Merely qualifying for Medicaid is not enough if after your death your family has to repay the state every penny of the benefits they paid on your behalf during your lifetime. There must be some planning techniques you can employ, right? Some “secret” to circumvent those hard rules? Let’s take a look at some…
First of all, in states where the recovery of paid-in benefits (“inheritance restoration”) is only by claiming against your probate estate (which the state calls “endorsement only”), all you need to ensure is that the Medicaid beneficiary has Not estate at the time of death. Thus, the beneficiary may only own assets in the form of POD, TOD, co-ownership with survivorship rights, annuities, etc. This is similar to the “avoid testament” technique, except that You cannot use living trusts: any asset titled in the name of a living trust would be a “countable” asset for Medicaid purposes, although it would normally be “uncountable” if it were no in trust.
For example, you can title the car with the shared name with a child. So the car would be titled “Mary Smith and John Smith, JTWROS.” John was Mary’s son, and upon Mary’s death, the sole rights to the car automatically passed to him out of a will. “JTWROS” stands for “co-tenant with survival rights”. (Be sure to check your state’s motor vehicle certification rules to make sure this will work in your state!) Since one car of any value is exempt during Mary’s lifetime, it is protected during her life and escapes recovery of property after her death.
The same approach can even be taken for his home. Because Medicaid beneficiary homes are typically life-exempt (up to $500,000 in equity value), it is only at the beneficiary’s death that there is a problem. So to avoid the house being included in the parental will, once again You can name the house as JTRWOS. ATTENTION: Adding another person’s name to the deed is giving interest on the house, effective from the date of the deed! So when Mary had her attorney add her son John’s name to the deed, he had just given her 50% of the house. While gift tax is rarely an issue, it should be considered. What’s more important, though, is that this is a Medicaid-disqualifying transfer, with heavy penalties. If Mary wanted to go this route, she might not be able to apply for Medicaid five years after he signed the deed.
Also, what if John is sued or divorced? Mary may still view the entire house as “her own,” but the creditor or the divorcing spouse will view the 50% interest in the home as an asset belonging to John, and that is subject to attack. Mary may find herself on the street if her house has to be sold to fulfill a divorce judgment or settlement.
Some states allow adding other people to the deed by giving them less than 50%, which can reduce the amount of the gift, but that’s something only your attorney can determine for you. Sometimes the rules for real estate law are different from the rules for Medicaid purposes. So, a word to the wise: make sure that the attorney doing the new deed for you is up to date on the effect this will have on your Medicaid eligibility!
In another of my articles on this topic, we’ll look at several other ways to plan for property recovery.
