FAQs — Repaying Medicaid

My mother is receiving Medicaid benefits. Can Medicaid recover her assets to repay the benefits she has received? Can Medicaid recover her home?

The family home is protected from Medicaid recovery if (1) the Applicant/Resident plans to return home, or (2) if Applicant/Resident can make an exempt transfer of the house to a person or Trust.

If a Medicaid applicant is married and residing in a nursing home and the Medicaid applicant's spouse resides in the residence then the residence is an "exempt resource" that will not be counted as an asset and Medicaid cannot file a Medicaid lien against the property. The spouse in the nursing home is referred to as the "institutionalized spouse" and the spouse residing in the home is referred to as the "community spouse." The residence is protected even if both spouses own the house and appear on the deed. Nonetheless, it may be wise to transfer the house to the community spouse depending on the circumstances. The residence is only protected for as long as the community spouse resides there. Once the community spouse dies, enters a nursing home, or moves someplace else, the home is no longer protected from Medicaid recovery. Before implementing ay transfers, you should consult with an attorney and review the tax and other consequences of transferring ownership of a home.

There are many factors to consider. The most important is the impact of income and capital gains, including the potential loss of a 100% step-up in basis when the spouse that earned the income dies first. This is irrelevant if the home has not greatly appreciated since the time of purchase, but is critical where there is a low cost-basis for the purchase of the property and a capital gain in excess of $250,000 (or $500,000 for a married couple) is expected. You must consider and weigh the consequences and the cost-benefit analysis. If the gain is below the applicable capital gain exemption, then the decision is an easier one.

If the Medicaid recipient is unmarried, or if there is no community spouse, the house could be transferred to a blind, disabled or minor child, or to a caretaker child that has resided with the parent for the two years immediately preceding the parent's entry into the nursing home (assuming the child provided care that kept the parent out of the nursing home). This is the "caretaker child" exception. There is also an exception where the house is transferred to a sibling of the Medicaid recipient / Nursing Home Resident, as long as the sibling lived there for at least one year and had an equity interest in the property (an "equity interest" for this purpose does not require that the sibling be named on the deed).

Another possibility is to transfer the home to a trust for a disabled person under age 65. If none of the above exceptions apply (i.e., caretaker child, sibling, or spouse residing in the home), but the Medicaid recipient has a disabled grandchild under the age of 65, then the Medicaid recipient can transfer the home to a Supplemental Needs Trust for that grandchild and the assets in the Supplemental Needs Trust are protected from Medicaid recovery.

If the Applicant/Resident has an "intent to return home", the residence may be protected for up to one year. If the Applicant/Resident does not ultimately return home, the home will no longer be an exempt asset.

A person's home is usually the most valuable asset they own. It is worth taking the time to consult an attorney to protect it.