The treatment of the home residence under the Medicaid rules can be somewhat confusing. Here is a brief rundown of the some of the major points to understand.
So long as the property (“Home”) is used as the principal residence by the individual who applies for Medicaid benefits (“Applicant”) and/or the Applicant’s spouse, the Home will not be a “countable asset.” This means its value will not be counted towards the maximum amount of assets the Applicant is allowed to keep. However, if the equity in the home is worth more than $814,000 for Medicaid applications submitted on or after January 1, 2014, then the excess is counted and may present a problem.
When the Applicant is single and a resident in a nursing home, however, and the Applicant is objectively considered to be in the nursing home merely on a short-term rehabilitative basis, then the Home is still considered the Applicant’s principal residence and it need not be sold. On the other hand, once the Applicant is considered to be a nursing home resident on a permanent basis, then the Home is no longer the Applicant’s permanent residence and under the Medicaid rules the Home must be sold and the State must be reimbursed for any amounts it has paid for care.
Apart from the issue of whether or not the Home is countable as an asset, there is also the issue of whether or not a transfer of the Home during Medicaid’s five year look back period will result in the assessment of a transfer penalty. If the Applicant (or their spouse, or their agent under a power of attorney) conveyed the Home to anyone else within five years of filing a Medicaid application and the Applicant did not receive full fair market value in return, then under the Medicaid rules, that transfer was a gift that will be penalized. The “transfer penalty” is a period of time during which Medicaid benefits will not be paid, even though the Applicant is otherwise eligible to receive benefits.
Under the Medicaid rules there are a number of exceptions to the rules that will permit the Home to be transferred without penalty. The Applicant and/or the Applicant’s spouse may transfer the primary residence immediately and without penalty to his or her spouse, or to a child under age 21, or to a child of any age if the child is blind or disabled under the applicable rules. The rules also permit a transfer to a sibling, if the sibling has an equity interest in the Home and was residing in the Home for at least one year before the Medicaid applicant was institutionalized.
Finally, there is an exception that permits a transfer to a child who (1) was residing in the Home for at least two years immediately before the date the applicant is institutionalized, and (2) who provided care to the Applicant which avoided the need of institutionalizing the Applicant during those two years. That particular rule is sometimes referred to as the “caretaker exception” to the transfer penalty rules. Depending on the family circumstances, the caretaker exception can be a valuable way for the family to protect the home from the devastating costs of long term care. However, it can be difficult to adequately demonstrate that the care provided by the child is the thing that kept the Applicant out of a nursing home during that two year time period. We encourage all our clients to keep careful records of the tasks that the caretaker child performs, and we also consult as needed with the client’s medical providers, to present a clear and compelling case for applying the caretaker exception in appropriate circumstances.