When you apply for Medicaid long-term care benefits, you will not qualify if you own too many assets (e.g., for an individual, no more than $4,000). If you have too many assets, Medicaid will make you spend those on nursing home care before it will start to pick up the tab. Also, if you own a home, Medicaid will not force you to sell your home to pay the nursing home, but it will put a lien on your house. After you die, Medicaid can file a claim against your estate to recover the amount it paid during your lifetime for your nursing home care. In that case, your family likely will lose the home or the equity you built up in it.
Medicaid also has a five-year look-back rule. So on the day you first apply for Medicaid long-term care benefits, it will count not only the assets you currently own, but any assets you gave away in the last 5 years. Many people try to give their homes away to their children, and then hope they don’t need to go into a nursing home for five years. Sometimes they make the 5 years, sometimes they do not.
Older clients in Rhode Island who want to protect their home may not have the luxury making a gift and waiting five years. For example, they may have an illness which will progress so rapidly that nursing home care is likely within the next 2 or 3 years.
Rhode Island is one of the few states that has a way to protect your home even if you are going into a nursing home next week. It is called a lady bird deed. You deed the house to your children, for example, but reserve a life estate. A life estate means you “own” the right to live in the house during your lifetime. If that is all the lady bird deed did, however, Medicaid would still say you gave away a big part of the house. Why? Because after your death, your children are guaranteed to get ownership the house. Once you give that away, you can’t change your mind and get it back. Your gift is complete.
The trick with a lady bird deed is that, it not only reserves a life estate for you, it also says that you can sell or take back the entire property at any time. Therefore, if you apply for Medicaid benefits the next week, Medicaid does not look at the transaction as a gift. It treats the house as if you owned it outright and in full.
Medicaid will still put a lien on your house, and will have claim against it after your death. So how has the lady bird deed helped you? Rhode Island law says Medicaid can only recover on its lien after you die if the house becomes part of your probate estate. If the house were in your name only when you died, it would have to pass through probate court to get the title changed to the name of the beneficiaries you named in your will. But the lady bird deed already names who will get the house when you die — your children. So when you die, ownership passes to them automatically under the deed. No need to probate the house. And because the house is never in your probate estate, Medicaid cannot file a claim against it based on its lien.
Because the lady bird deed is such a powerful asset protection tool, the Rhode Island legislature is considering a bill to make it ineffective for Medicaid lien avoidance. The bill is still in committee, and it is expected that new legislation will not apply retroactively to lady bird deeds already in existence when it passes. This gives Rhode Island residents a very important “window” in which to use this as an asset protection tool.
DLO serves the estate planning, elder law and asset protection needs of Massachusetts (especially the communities of Attleboro, Foxboro, Mansfield, North Attleborough, Norton, Easton, Sharon, Canton, Franklin, Plainville, Rehoboth, Seekonk, Taunton, and Wrentham) residents and Rhode Island (especially Providence, Pawtucket, Cumberland, Lincoln, and Woonsocket) residents.