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Question: My mother is receiving Community Based Medicaid. She owns a house in her sole name. She has received advice on what to do with the house such as transfer it to her children or to a trust. Are these options advisable?
Answer: The house should be transferred out of your Mom’s name. Individuals who have received benefits under the New York State Medicaid program are subject to estate recovery for assets passing through their probate estate. Where a Medicaid recipient passes away with assets in their sole name, a probate proceeding must be commenced in Surrogate’s Court. Once this occurs, the Department of Social Services will seek to recover monies they paid for services on behalf of the Medicaid recipient. Assume that Mom has been on Medicaid for five years, receiving services eight hours per day, five days per week, receiving a total of 10,400 hours of care paid for by the Department of Social Services. Assuming the rate of $20.00 per hour, Medicaid has paid out an excess of $208,000.00. If there are assets passing through her probate estate, such as the house, Medicaid will have the right to lien those assets up to the amount paid on behalf of Mom, here, $208,000.00. If your Mom ensured that no asset, including the house, passed through her probate estate, Medicaid would not have anything to lien.
As far as transferring the house to the children, in almost all cases our answer is no. The transfer would avoid probate, however, the outright transfer raises concerns. Once the property is transferred to the children it is a completed gift. The children are under no obligation to transfer it back. The house is subject to equitable distribution should any child get divorced. Enhanced Star or Veteran’s Exemption, would be lost. Once the children sell the house, they will have to pay a capital gains tax on the difference between what you initially paid and the selling price, minus improvements.
There is another way to transfer property for the purpose of asset protection without the negative consequences above. One option is to transfer your home into an Irrevocable Trust. You gain the same protection for the purpose of Medicaid protection without losing your rights and interest in the home. You should consult with an Elder Law Attorney who is familiar with Medicaid planning before making any decisions.
