Preserving The Primary Residence Many Financial Considerations Complicate Elder Law Planning For Seniors

The vast majority of clients seeking estate planning come to my elder law office with the same fear: “I don’t want ‘the state’ to take my home.”

 

Many recite vague horror stories from neighbors or relatives who went into a nursing home and lost their homes in one way or another, and come to my office primarily to make sure the same doesn’t happen to them.

While I can quell their fears somewhat by ensuring them they can be eligible for long-term care MassHealth benefits while owning a home, the fact remains that, without proper planning, if appropriate to that particular client, they may well lose some or all of the value of their home to the state if they someday require care in a skilled nursing facility and apply for MassHealth to finance that care.

The following is intended as a brief overview, and is for informational purposes only. It in no way constitutes legal advice.

Financial Eligibility Rules

Federal and state laws work together to provide coverage for clinically and financially eligible applicants requiring skilled care in a long-term care facility. The federal guideline is Title 19 of the Social Security Act. Massachusetts operates its own system within this federal guideline. The program formerly known as Medicaid is now called MassHealth and is operated by the Division of Medical Assistance.

Assuming clinical eligibility, a person is financially eligible for MassHealth nursing home coverage if he or she does not have more than $2,000 in countable assets in his or her name. If married, the spouse at home can keep one-half of the couple’s joint countable assets up to a maximum of $90,660.

With the representation of a qualified elder law attorney, an appeal process may allow a married couple to keep more than that limit. Among other non-countable assets, including but not limited to a prepaid irrevocable funeral contract, a burial account of not more than $1,500, and a life insurance policy with a face value not to exceed $1,500, the home is not a countable asset as long as you intend to return to it.

The caveat to this rule, and the reason for advance planning where appropriate to the client, is that, while the home is a non-countable asset in determining MassHealth eligibility, it is still subject to the lien rules. If properly placed and properly enforced, a MassHealth lien for even a few months of nursing home coverage could easily wipe out the equity value of an average home in this area.

In determining financial eligibility, MassHealth has the right to review the entire financial history of the applicant and spouse for 36 months from the date he or she applied for MassHealth. This is called the ‘look-back’ period, and extends to 60 months if assets have been moved into a trust. The fact that you may have made a gift during the three-year look-back period does not necessarily mean you are ineligible for MassHealth.

In certain circumstances, a long-term care insurance policy may be in an elder’s best interest. A policy that meets Massachusetts’ minimum requirements may exempt the principal residence from ever being subject to nursing home liens, and may provide a cushion of additional income for a specified period of time to help defray the cost of care either at home or in a rehabilitation facility.

The Principal Residence

The home is not a countable asset, but if you transfer the home or an interest in the home to anyone other than your spouse, it is treated as a disqualifying transfer subject to penalties. One goal of asset protection planning is in part to reduce or eliminate these transfer penalties. The following is a non-inclusive summary of some options regarding holding and transferring the home and the effect on MassHealth eligibility for long-term care coverage.

Spousal Ownership/Tenants by the Entirety: Even if a nursing home resident/MassHealth applicant does not intend to return home, the home is not countable if his or her spouse (or certain other qualified people) occupy it. If competent, the institutionalized spouse can transfer his or her interest in the home to the healthy spouse individually. If incompetent, the same can be accomplished with either a valid durable power of attorney containing adequate gifting powers and (ideally) listing the real estate specifically, or through guardianship and a gift petition under the probate court rules.

Joint Tenants: Creating a joint tenancy in property by adding another name to the deed (other than a spouse) will create a penalty period based on the value of the asset, running from the first day of the month in which the transfer is made. Once this penalty has expired, however, the property is countable only to the extent of percentage of ownership (i.e., two owners, 50{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} ownership attributable to each). Thereafter, it may be considered ‘inaccessible’ and thus non-countable to the elder’s eligibility. Liens can still be placed on the property, but the applicant’s interest is extinguished at death. Under current law, MassHealth can attach the probate estate only of a deceased recipient.

Deed with Reserved Life Estate: Another option is to deed the property to a non-spouse but reserve a life estate for the elder. Among the benefits of retaining a life estate interest in real property, the transfer penalty for MassHealth eligibility will be reduced because the elder is not transferring the entire property, but rather a future or ‘remainder’ interest in the property. A penalty will be imposed, but once this penalty period has passed, an applicant may be eligible for MassHealth even while owning a life estate interest in their home. After the death of the life tenant, the property will pass automatically to the remaindermen by operation of law, requiring no probate. MassHealth may lien the property, but as long as it is held until the life tenant’s death and there is no probate estate, under current regulations the lien must be dismissed.

Individually Held Property: If an elder chooses not to deed his or her property to anyone, all is not lost. He or she can be eligible for MassHealth long-term care benefits as long as he or she intends to return home. If circumstances change and it becomes desirable to sell the home, by planning within the rules, 40{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} to 50{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} of the proceeds can be saved under current MassHealth regulations and the remainder spent on the elder’s needs, including paying for his or her own care in the nursing facility. In addition, there is the possibility that the property can be deeded without penalty to certain individuals, such as a disabled child, a caretaker child, or a sibling with an equity interest.

Risks of Transferring Assets

It is important that you be fully informed of the risks of undertaking any transfers to children or otherwise. First, if you are considering a transfer of your home, you must understand that deeding away any interest in real estate is a gift and cannot be recouped unless the recipients agree to give it back.

You may love your children, but what about their respective spouses? There is always the risk that your child could predecease you, potentially leaving a gifted asset to that child’s spouse. Another risk to undertaking any transfers is that you could need to enter a nursing home before the transfer penalties expire, requiring private payment until the expiration of those penalties. If the children do not agree to return the money, or have spent it, you could be in an unfortunate position.

Through proper planning and the assistance of an expert in the field of elder law, no situation is hopeless, and there is the possibility of savings even at the last minute.

The earlier you plan, the greater your potential savings. But at whatever stage you find yourself, or whatever your needs, don’t hesitate to educate yourself so as to take advantage of the laws that are there to protect you. It is NOT the nursing home’s job to tell you your rights under Massachusetts law in your time of need. Know your rights.

Finally, always remember that these rules change faster than New England weather. Never rely on any information, including the information contained in this article, except that obtained through a qualified elder law attorney in your own time of need.

Holly Lewis is an attorney specializing in elder law in West Springfield; (413) 736-8737.