Medicaid Basic Rules
A person can apply for Medicaid to pay for nursing home care or care in the home when the countable, available resources have been reduced to $2,000 plus an allowance for the community spouse which is called the CSRA or Community Spouse Resource Allowance. It is important to understand the fundamental concept that a transfer of any interest in property for less than fair market consideration, if made within the five years prior to applying for Medicaid, will trigger a disqualification period known as a transfer penalty unless the property was the primary residence and it was transferred to one of a limited category of transferees. The result of this disqualification is that Medicaid will not pay for the care regardless of poverty or medical necessity.
THE HOUSE AS A COUNTABLE OR EXEMPT RESOURCE UNDER THE MEDICAID PROGRAM
As a general rule, all available real property is counted as a resource when applying for Medicaid, to the extent of the individual’s ownership. However, generally it is excluded as a resource if it is occupied by the community spouse, a sibling with an equity interest, a disabled family member or a minor child at the time of the Medicaid application.
If the house is not occupied by such a person, it is excluded from consideration temporarily, usually for six months. After that, if the individual cannot return home and continues to require Medicaid benefits, the property must be listed for sale.
When the home is occupied by non-owner family members other than the spouse, the county practices vary as to whether the property must be listed for sale. When the property is occupied by co-owner family member(s), typically there is no requirement that the property be immediately listed for sale. In the case of the community-based Medicaid programs for people living in their houses, of course, the house may be retained.
If the elder is not applying for Medicaid, the family may choose to sell the property or keep it and rent it out.
The fact that the property may be exempt under certain circumstances — such as when there is a spouse living in the home — does not mean that the home can be transferred by the elder to someone else without incurring a transfer penalty.
MEDICAID TRANSFER PENALTIES
Since possession of the real property creates the risk that it will have to be sold to pay for care, elders may want to transfer that property in order to protect it for their heirs or co-owners. Transfer of the complete interest in real property as a gift within the five years preceding a Medicaid application generally causes a lengthy transfer penalty period. If partial interests are transferred, pro rata values are assigned. In a transfer with a retained life estate, actuarial tables published by Social Security dictate the value of the transfer.
The issue is, if the elder transfers the house by gift, and is grievously injured shortly afterwards and needs round-the-clock care or nursing home care, will the elder have enough liquid assets to pay for his care privately through the transfer penalty period until he can apply for Medicaid? Currently, nursing home level care costs between $8,000 and $10,000 per month, whether in a facility or in one’s own home. Children who have been given their parents’ house are never very pleased to discover that they need to undo that real estate transfer because the parent didn’t have enough funds to pay for the nursing home care that was needed sooner than had been expected.
SOME TRANSFERS CAUSE NO PENALTIES
There are some exceptions to the transfer rules with respect to gifts of the primary residence. The primary residence can be transferred to the following categories of recipients without incurring any transfer penalty at all: the spouse, a child under age 21, a child of any age who is blind or permanently disabled, a sibling who has resided in the home for one year or more and already has had an equity interest in the home, and a care-giver child [not grandchild or other relation] who has resided in the home and provided extensive care-giving for two years or more prior to the move to a nursing home. Transfers of any real property to trusts for the “sole benefit of” the spouse, a disabled individual under age 65, or a disabled child can also qualify as exempt transfers, as long as all of the criteria of the regulations are satisfied.
Timing can be very important. Transfer of the property to a care-giver child at the time of placement in a nursing home is an exempt transfer; transfer of that property at a time which is unrelated to an application for Medicaid will likely cause a period of disqualification. Thus, if there is a “care-giver child” living in the home, the elder may be seeking to transfer the house prematurely, and could be incurring a transfer penalty which could be avoided if the transfer doesn’t take place until “the last minute.”
If the Medicaid recipient still owns property at time of death, the property will be subject to a Medicaid lien following the death of the Medicaid recipient-owner of the property, to the extent of that interest, if there is no surviving spouse and none of the other limited exceptions apply.
An outright transfer eliminates the risk of a lien, but a retained interest – although solving other problems – means that there is an asset against which there will be a lien to the extent of the interest held by the Medicaid recipient at the time of his or her death.
The lien law applies regardless of whether the property was excludable during the lifetime of the Medicaid recipient. Also, the lien law applies regardless of the fact that the property might have been transferred as an exempt transfer during the Medicaid recipient’s lifetime.