Protecting Your House from Estate Recovery

Many people don’t know that after a Medical Assistance recipient dies, the State may attempt to recoup from the decedent’s estate whatever benefits it paid for that individual’s care. Moreover, the State will almost certainly make another claim for those benefits upon the death of the surviving spouse, regardless of whether or not that surviving spouse ever received Medical Assistance benefits himself or herself. This process is called “estate recovery,” and is an area where states are becoming increasingly aggressive in their recovery efforts. For many people, setting up a “life estate” scenario is the most simple and appropriate alternative for protecting the home from the estate recovery process, although in most cases current laws do not allow for a complete protection of the value of the home.

What is a Life Estate?

A “life estate” scenario is a form of dual ownership of property between two or more people. They each have an ownership interest in the property, but for different periods of time. The person holding the life estate possesses the property currently, and for the rest of his or her life, regardless of whether he or she lives in the property. This is typically the parent or parents. The other owner or owners have a future or “remainder” interest in the property. The remainder interest holders have a current ownership interest, but cannot take possession until the end of the life estate, which occurs at the death of the life estate holder or holders. As with a transfer of real estate into a trust, the transfer of a remainder interest in real estate will trigger a Medical Assistance ineligibility period. Therefore, planning ahead is prudent to maximize the benefit of this option. 

Irrevocable Trust

Another method of protecting the home from estate recovery is to transfer it to an irrevocable trust. In theory, trusts provide more flexibility than life estates, but are substantially more complicated. Once a house is in an irrevocable trust, it probably cannot be taken out again. Although the house can subsequently be sold, the proceeds must remain in the trust. Moreover, in order for an irrevocable trust to qualify under Medical Assistance rules as an unavailable or exempt asset, the beneficiary of the trust cannot have any access whatsoever to any of the assets in the trust, even if the house is sold and the trust assets are all cash. Any access to the trust assets by the beneficiary will render the trust available to Medical Assistance, and all protections are lost. Based on all of this, transfers of homes or other assets into irrevocable trusts are rarely an effective Medical Assistance planning tool. Consultation with an Elder Law attorney is critical to determine what your best options are.

**NOTICE** The information contained in this article is general in its scope, and not intended to constitute the provision of legal advice, or the acceptance of representation, to any individual. If you have any specific questions or concerns, please contact an attorney.


Article offered by Craig Goldman, Attorney


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