Q: I transferred ownership of my house to a Medicaid Qualifying Trust ten years ago. I just put it on the market for sale, where will the proceeds go after sale? Are they protected?
A: Many clients choose to place their primary residence into a Medicaid Qualifying Trust. Once the trust is drafted and signed by the client and trustee, and the deed transferring ownership is signed, there is no impact on the client’s day to day life. Best practice is to contact the homeowner’s insurance to add the trust as an “additional insured.” Clients should check the property tax bill to make sure that any property tax exemptions are still in effect post-transfer. This can include a Veteran’s exemption, STAR, and enhanced STAR. While the client cannot be the trustee of this type of trust, they can name any person other than their spouse to act.
The Medicaid Qualifying Trust often gives all income generated by the trust to the “grantor” or creator of the trust. It can also have language that states that the property is fully within the control of the grantor and that the grantor has full responsibility over maintenance and upkeep of the property. If the grantor decides to sell the property while still living, they can qualify for the $250,000 per spouse exemption from capital gains just as if it were in their name rather than that of the trust. The contract with the realtor, contracts with the eventual buyer, and closing documents will need to be signed by the trustee of the trust.
Upon sale, the proceeds must be deposited into a bank account in the name of the trust. If the home was the only asset that was in the trust, a new account will have to be opened by the trustee using the tax identification number for the trust. The funds can then be invested and reinvested in a manner deemed prudent by the trustee. In many cases, the trust will buy a new residence for the grantor. The grantor will have all the same rights and responsibilities over this new property as he had in the original residence. If the trust provided that all income is to be paid to the grantor, any trust income from investments will be passed out to the grantor and taxed at his individual income tax rate.
Regardless of the date of the sale of the property, the initial transfer of the property into the trust is the moment at which the property is not considered an asset of the grantor’s for Medicaid purposes. For those concerned about eventually applying for Medicaid to cover the cost of a nursing home, the five year look back on the transfer of assets began to run at this initial date of transfer.
If a Medicaid Qualifying Trust is selling a residence, it is imperative that the client and their real estate attorney confer with an elder law attorney to maintain the full protection of the trust assets.
– Britt Burner, Esq. and Nancy Burner, Esq.