If the community spouse dies prior to the nursing home spouse, under state intestate laws, the nursing home spouse will inherit the home. If the home is solely in the name of the community spouse, then the home is not considered a personal residence by the nursing home spouse and the home is no longer exempt and will count as an asset. This will disqualify the nursing home spouse for Medicaid.
An attempt could be made where the home is solely in the name of the community spouse to create a will that disinherits the nursing home spouse. Unfortunately, states do not allow spouses to disinherit each other and require that regardless of any prior arrangements, a surviving spouse has a legal right to an “elective share” of the assets. In some states, this could be a third of the amount or possibly one half of the amount or some other number.
There is also a problem in those states where the community spouse transfers the home to someone else and that counts as a disqualifying gift for the nursing home spouse. Thus any gifting arrangements prior to death would disqualify the Medicaid beneficiary.
An immediate and sudden death of the community spouse cannot be planned for. An anticipated death, due to declining health, can be planned for. Strategies for dealing with this potential problem need to be addressed by a qualified elder law attorney.
Avoiding Recovery in Probate Only States
In those 13 states that only apply recovery through the probate process, any planning strategies that bypass probate will prevent recovery. This might include the use of a living trust or putting other people on the title in joint ownership with rights of survivorship Colorado payday loan laws.
It should be noted that if the state changes its definition of “estate” to include trusts, life estates or other arrangements, there has been typically no grandfathering allowing application of the previous rules. In other words, if the planning has been done to avoid probate and the state can now go beyond probate for recovery, little can be done to avoid this.
Irrevocable Trusts for Avoiding Medicaid Recovery
A properly structured irrevocable trust, meeting Medicaid requirements, that has title to the home, will avoid recovery. The problem is that transferring the home to the trust will create a penalty within the five-year period from the date of transferring title. The exception to this is in those states where the community spouse has sole title to the property and can transfer the home without affecting the eligibility of the nursing home spouse. On the other hand, the transfer of the property does create a penalty for the community spouse.
Promissory Note for Medicaid Recovery
The home could be sold on a promissory note and this effectively changes it from an asset to a loan and it is no longer considered an impediment to Medicaid qualification. Payments from the loan must be used to offset the care cost of the Medicaid beneficiary. This strategy used to be a very common one prior to the Deficit Reduction Act. The new rules pertaining to promissory notes make this strategy much more limited.
For example, for a 90-year-old this might only be five years. This would make the payments very large and potentially unattractive for the family who is buying the property. All payments through the life of the loan must be equal. In addition, the loan cannot be canceled at death but payments must continue throughout the term of the loan into the estate of the deceased beneficiary which would make them subject to recovery. In those states that use probate for recovery, Medicaid could be bypassed by naming a beneficiary of the loan payments other than the state. The loan must be non-assignable meaning it cannot be used as collateral for another loan or purchased outright for cash.
