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PROTECT YOUR HOME FROM MEDICAID LIENS (PART 2)

Last month we discussed the dangers of having the government put a Medicaid lien on your home and property if you end up in a nursing home.  Remember, a “revocable living trust” cannot protect your home from nursing home costs.

Some senior citizens who are worried about Medicaid liens just give the house to the children.  I do not think this is wise.  There are many cases in which the parents gave the home to the children, then the children kicked the parents out of the home!  Even if your own child would never kick you out of your home, maybe your son-in-law or daughter-in-law would.

There was a case in Honolulu in which an elderly father and mother had only one son.  The son was married but had no children.  The parents went to a lawyer  and gave their home to their son.  They kept living in the house.  The son and his wife got into a terrible car accident.  The son died first.  Then the son’s wife died.  When the son died, the house went to his wife.  When the wife died, the property went to her parents!  Her parents lived in Germany.  The couple in Germany sold the house!  The elderly couple in Hawaii were kicked out of their own home in their old age!  Because of cases like this, I do not recommend that you just give your property to your children.

In my opinion, the best way to protect your home from Medicaid liens is to give the property to your children, but to keep a “life estate.”  Keeping a “life estate” means that you legally own the property as long as you are living.  Nobody can kick you out.  Yet, you have legally given away a “future interest” in the property to your children.  This means that your children already own the property now, but cannot use it while you are living.  If you were to pass away, the children would automatically be the full owners of the property.

If you give your home to your children (or other loved ones), but keep a life estate, these are some of the consequences:  1) you cannot take the property back unless your child agrees; 2) you cannot mortgage or sell the property unless your child agrees; 3) if you do sell the property while you are living, you will get only part of the money from the sale, and your child will get part of the money; 4) when you die, the value of the property will be counted with your other assets to see if you have more than $1 million (if you do, there may be an estate tax.)  5) If you apply for Medicaid within 5 years, there will be a penalty period ( a period of time during which Medicaid will not pay nursing home costs).

There are several advantages to giving away your property while you are living, but keeping a life estate:  1) you will still be entitled to the homeowners exemption from property tax; 2) you can live in your home for the rest of your life; 3) there will be no probate of your home when you die; 4) a Medicaid lien cannot take the property away from your children; 5) when you die, the property gets a “stepped up basis” so that if your children sell the property, they will pay little or no capital gains taxes (because of the 2001 Tax Act, there will may be no stepped up basis if you die in the year 2010.)

If you already have your property in a revocable living trust, you can still use the life estate technique.  You just take the property out of your revocable living trust, put it back in your own name, then give it to your children, keeping a life estate.  If more senior citizens did this, more children would be protected from Medicaid liens on the family home.

OKURA & ASSOCIATES, 2010