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Can Medicaid Put a Lien on My House?

The simple answer is no. So long as the house continues to be your primary residence, Medicaid cannot put a lien on the home.
July 28, 2021
HomeBlogCan Medicaid Put a Lien on My House?

The simple answer is no.  So long as the house continues to be your primary residence, Medicaid cannot put a lien on the home.

Generally speaking, to qualify for nursing home Medicaid (also known as Chronic Care Medicaid), a Medicaid applicant can have up to $15,900.00, not counting tax-deferred retirement accounts – however the required minimum distribution from such accounts is counted as income. If the applicant is married, then the primary residence is an exempt asset so long as the spouse resides in the home. The exemption also applies if a minor child, disabled child, or a sibling with an equity interest lives in the home Additionally, the Medicaid imposed equity limit on a primary residence, which is currently $906,000, does not apply under such circumstances.

However, there are still important planning tools to consider to protect the home should you need Medicaid in the future, or to avoid a lien on the home at the death of you and your spouse.  If you were to end up in a nursing home or pass away with the house still in you and your spouse’s names, the property will lose its exempt status. Without advanced planning, the choices are limited to paying privately for the facility; or selling your home and doing promissory note planning where approximately half of the sale proceeds stay protected and the other half paid to the facility. If you pass away, Medicaid can place on lien on anything passing through your estate. Even worse – if you own the house with right of survivorship with your spouse who is receiving Medicaid – the house passes back to the spouse as a non-exempt asset! To avoid these less than ideal alternatives, you can transfer the property out of your name into an irrevocable trust, which provides for asset protection planning against Medicaid.

An Irrevocable Trust for Your Primary Residence

As you may be aware, nursing home Medicaid imposes a lookback on transfers made within five years of applying for Medicaid.  Transfers made within this time period by the applicant or spouse will create a penalty period in which Medicaid will not cover the cost of care at the facility.  However, after five years, the asset is completely protected from Medicaid.  By placing the home in an irrevocable trust now, you can start the clock on the five years and prevent a lien on the home both during your lifetime and after death.

If you have children and planned on passing the home to them after your death, you may be wondering what the benefits are to creating a trust instead of transferring the property to your children now.  Although transferring the property to your children will accomplish the same goal, there are many benefits to placing the property in trust.  By transferring ownership to a trust, you will still be entitled to the exclusive use and occupancy of the home and maintain all tax benefits afforded to you – including the star exemption.  Should you decide to sell the home during your lifetime, you are afforded a $250,000 capital gains exemption on the sale proceeds (or $500,000 for a couple).  Additionally, you can avoid messy complications from your children’s divorce or creditors. Lastly, the property will receive a full step-up in cost basis at the owner’s death, saving your children from capital gains tax. For example, if you bought the home for $100,000 and it is worth $600,000 at your death, your children’s’ cost basis is now $600,000.  Should they sell it after inheriting the home at your death, they would pay no capital gains tax on the sale – except for any gain between your date of death and the sale. If you were to, instead, deed over the property during your lifetime, their cost basis is the same as yours, they would owe upwards of 30% capital gains tax, and they would not have the $250,000 capital gains exemption because they do not live in the home.

Legal Help to Avoid or Negotiate Estate Recovery in New York

While trust ownership is a great option for many, every family is different and this particular method may not meet your specific needs and goals.  You should always meet with an elder law attorney with extensive knowledge in the field of Medicaid planning, who can explain your options and determine the best route for you and your family.