In Medicaid planning, protecting the family assets is one of the primary goals. It is important to preserve as much wealth as possible, as many people want to be able to pass everything down to the next generation. Equally important, however, is to ensure that the non-Medicaid spouse can maintain their quality of life and live in comfort.
Because of these concerns, one of the biggest questions that is asked in the Medicaid process is “what happens to my house?”
First, it is important to differentiate between types of homes – your primary residence is your homestead. To qualify as a homestead, it must be your primary residence. No filing is necessary – no notice or affidavit is required to establish your homestead. Your primary residence IS your homestead. This post will only focus on homestead properties. Second homes and rental properties are subject to different rules and will require additional steps for protection.
It is important to keep in mind that your exempt homestead is limited in size: if you live within an incorporated territory (the city of Orlando, or Winter Park) then your exempt size is one half acre. If you live in unincorporated territory, then you are allowed 160 acres.
The easier situation for the home is when one spouse enters a long-term care facility and leaves a spouse behind. With someone continuing to reside in the home, the home is protected and exempt from Medicaid. However, what happens if both spouses need care, or there is no spouse at home? You will need to demonstrate an “intent to return”. This can be shown in any number of ways, including in a statement, or in leaving furniture and other belongings in the house. There is a cost here, including property taxes, insurance, and HOA dues. However, do not be tempted to alleviate that cost by renting the house out, even to a family member.
When you rent the house out, you show that there is no intent to return. How could you when someone else is living there? Even if this person is family, and you argue that they intend to live there with the Medicaid parent, collecting rent can create an issue where homestead is defeated, and the property is exposed.
Even after death, a homestead property can be protected. As long as it is properly passed in accordance with homestead laws, it remains exempt from all creditors. And that includes Medicaid. Obviously, there are some pitfalls here and that includes the common wording, “I direct that my house be sold and …”. The instant you do that, you void any homestead protections and any creditor can go after the value of your home. Ensuring that you leave your house to the right heirs is also important. Working with an attorney can help you to craft the most secure estate plan so that your homestead is protected.
When you have the time to prepare for Medicaid – when you can do the long-term planning instead of having to do last-minute emergency planning – you have a wide range of options to protect your house beyond anything that we have discussed here. You can also protect the portion of your home that is not considered exempt homestead, as well as other properties, including income-producing properties, that you may own. Furthermore, because Medicaid takes all but $130 per month for the patient’s responsibility, the family will be responsible for the maintenance of the house and it may need to be a group decision as to how to proceed. However, selling the property is risky as well because that money would then affect the parent’s eligibility for Medicaid. Therefore, it is better to plan for the long-term than try to make decisions quickly. While there are many planning options, and while the homestead is generally protected, there are risks and costs involved that you will have to evaluate. There will be pros and cons for any decision.