While there are strategies to protect the home of those who are entering, or already in a nursing home, the focus of this article is on advanced Medicaid planning: for those who will not be needing nursing home care within the next 5 years. I will discuss crisis Medicaid planning techniques in a future series of articles.
Why consider advanced Medicaid planning to protect the home and other real estate? Indiana has a 5‑year look back period on most transfers of assets; the current penalty divisor is $5,923.00. In other words, every $5,923.00 that has been given away by the nursing home resident over the past 5 years will result in one month of Medicaid ineligibility, called a penalty period, once he or she is approved for Medicaid to help pay for nursing home care. For instance, if the nursing home resident gave away a $150,000.00 home to a healthy sibling in 2012 (within the 5‑year look back period), then Medicaid will not pay for 25.3 months of nursing home expenses once Medicaid has been approved.
Transfers that take place before the 5‑year look back period are not subject to a Medicaid penalty period. The home and other real estate may be transferred to heirs, placed into an irrevocable trust, or the homeowner may transfer the house to children while retaining a life estate interest in the home; keep in mind, however, that the life estate interest must be listed for sale or for rent once Medicaid coverage is sought, even after the 5‑year look back period. While these options can potentially protect the home from Medicaid Estate Recovery, each carries various risks and tax consequences which should be discussed with your elder law attorney and CPA.
In certain circumstances, transfers of the the home and other real estate will not cause a penalty period, regardless of when the transaction occurred; I discussed such transfers in my blog titled, “7 Asset Transfers That Will Not Affect ‘Nursing Home Medicaid’ Eligibility”.
The home and other real estate, held solely in the name of the spouse of a Medicaid recipient, is not considered to be a countable resource affecting the Medicaid recipient’s $2,000.00 asset limit. As such, it is not subject to Medicaid estate recovery after the death of the Medicaid recipient. Since transfers of assets between spouses are not subject to a Medicaid penalty period (even if they occur within the 5‑year lookback period), it is normally recommended to change ownership of all real estate into the name of the non-Medicaid recipient spouse.