Is There A Way To Protect My Home From the Nursing Home Cost?

For those entering the later years of their life, a common fear and question we often hear is “can the nursing home take my house?” Unfortunately, this is a very real possibility for those who may ultimately need to be cared for in a nursing home. In Massachusetts, there are two common ways to pay for nursing home care. The first is to use a person’s own savings to pay. However, with the average cost of a nursing home in the greater Boston area ranging from $12,000 to $15,000 a month, this can quickly deplete personal savings and leave nothing as inheritance for their children. The second way to pay for long term nursing home care is to apply for Medicaid benefits, which in Massachusetts is part of the MassHealth program. To be eligible, an individual must be below the asset threshold of $2,000.Fortunately, the value of a primary residence is not included when determining this asset threshold. This means a person could have $1500 in a checking account and a home worth $550,000 and satisfy the asset requirements. Unfortunately, if that person does qualify for MassHealth, the state will put a Medicaid lien on the residence. The end result is that this lien will grow every month and will slowly eat at the equity as more nursing home costs are paid for. MassHealth will collect this money when the property is sold after death. This is what is meant by the “nursing home taking your house.”

The question then becomes, “how can the home be protected?”There are several strategies that can be employed that can protect some or all of a person’s interest in their home while also remaining eligible for MassHealth benefits. One strategy is to give away the property during lifetime. This method does work, but it also comes with some significant drawbacks, beyond the fundamental concern of having no ownership and control of the property. First, MassHealth will not only look at a person’s current assets but also at any transfers made in the five years prior to applying for MassHealth, making a person ineligible for the benefits until that five-year period is over. Second, the property, now in the name of the children, is exposed to all of their risk, whether that is divorce, creditors, or lawsuit, etc. Furthermore, the children will now have to include the property as an asset when it might not be advantageous to them; for example, applying for a mortgage or financial aid for college for their own children. Third and one of the greatest drawbacks, is that the children have the same cost basis in the property as the parent had. This means that if the children do sell at any point in the future, they will pay capital gains tax on the difference of the cost basis of when the parent purchased the property and the current market value if the children do not live in the home as their primary residence.

Another strategy families will utilize is referred to as a “Life Estate deed”. In this scenario, the children would have their names on the deed and hold legal ownership. However, the parent retains a legal life estate in the property, which means they keep their name on the deed as well and retain the right to live in the house (or collect rent on a lease) until their death. The Life Estate does have some advantages in addition to protecting the home: it avoids probate, the children’s share of the property is protected from Medicaid after the five year look back period and the children also get the “step-up” in basis of the property (meaning they avoid capital gains if the property is sold after death). However, the disadvantages of the children having a property interest remain as described in the outright gifting strategy, where their share of the property is exposed to their own risk (lawsuit, creditors, divorce, etc.). In addition, if the property is sold during the parent’s lifetime, the children may have to pay capital gains on the sale if they do not live in the property and the share allocated to the parent is still exposed to the cost of long term care.

Most issues and liability in trying to protect the home from the cost of long term care stems from either the parent or the children having an outright ownership interest in the home. How can this be avoided? The key to structuring this so that there is the least amount of exposure is a third strategy: a Medicaid Asset Protection Trust. The strength of this strategy is that it provides the protection of the home from Medicaid but does not create the exposures associated with anyone having outright ownership of the home. During the parent’s lifetime, the home will not be exposed to any of the children’s risks as they are not owners.In addition, the entire property is protected from a Medicaid lien after the five-year look back period, and, from a tax perspective, the step-up in cost basis is maintained and reduces the amount that is taxed as capital gains when the property is sold after the death of the parent. Finally, after the parent’s death the house will transfer to their children via the trust (thereby avoiding probate).

Every family structure and dynamics are all different and there is no “one size fits all” strategy. Each requires careful discussion and analysis with legal counsel to determine which, if any, could be an appropriate solution. The above examples are not to be considered or taken as legal advice. Give us a call at Simmons & Schiavo to discuss further advantages and disadvantages of each strategy to determine which one is best for you.