Client Alerts  - Trusts and Estates Dec 13, 2022

Medicaid, Preserving Primary Residence, Florida Estate Planning

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Medicaid Planning Options for Preserving the Primary Residence and Florida Estate Planning

Medicaid Planning Options for Preserving the Primary Residence

Medicaid is increasingly becoming a source of payment for the rising cost of nursing home care. However, unlike Medicare, Medicaid benefits are not automatic. Subject to specific limitations and exceptions, the value of your assets (resources) and those of your spouse, if applicable, are considered available to pay for nursing home care before Medicaid will cover the expense. Thus, the value of your primary residence may be a factor in determining Medicaid eligibility.

For example, if one spouse in need of nursing home care applies for Medicaid coverage while the other spouse continues to reside in the primary residence, the value of the primary residence is disregarded as a resource. But what happens in the future when the non-applicant spouse also needs Medicaid benefits for his or her own nursing home care or has passed away? What if the primary residence was individually owned in the first place? That residence might now be counted as a resource and subject to liquidation or a lien for Medicaid benefits paid out for nursing home care.

There are options available to preserve the primary residence for heirs in the context of Medicaid eligibility for nursing home care.

Planning Options

One planning option is to convey the primary residence to another person (often a child or children) while retaining life use of the property (life estate). The life estate removes the value of the primary residence from your pool of resources that may otherwise be used to pay for nursing home care in lieu of Medicaid. Although you may also consider an outright gift of the primary residence to another, by retaining a life estate you maintain control over the residence and have a place to live until nursing home care is needed, if ever.

An alternative is to convey the primary residence to an irrevocable trust for your benefit. With this specific type of trust, you retain full use, occupancy and possession of the residence. If the residence is later sold (for example, to downsize later in life), the proceeds must remain in trust. As beneficiary of the trust, you have access only to the income generated by the proceeds. Despite that drawback, a properly drafted trust will remove the value of the primary residence from your available pool of resources.

Penalty for Transfer and Exceptions to the Rule

Be aware of the Medicaid five-year lookback rule. From the date an application for Medicaid is submitted, your financial transactions during the preceding five years are reviewed for gifts of cash or other assets, including real property. Both the conveyance of a primary residence to a third party with a retained life estate and a conveyance to an irrevocable, income-only trust are considered a gifting of assets. If any gifting occurs within the five-year lookback, the transaction could result in a penalty period. During the penalty period, no Medicaid benefits are available and you remain responsible for the cost of your nursing home care.

A transfer of the primary residence, although made during the five-year lookback, will not result in a penalty period if made to:

  • A spouse
  • A certified blind or disabled child
  • A sibling with an equity interest in the residence and who resided there for at least one year
  • An adult caretaker child who resided in the residence for at least two years and who provided care to the applicant that permitted him or her to stay at home

Preserving the primary residence in relation to Medicaid eligibility is not necessarily risk-free and may result in income, real estate or estate taxes that should be discussed with your attorney. However, preservation of your primary residence can be achieved with proper planning well in advance of a need for nursing home care.

Additional Assistance

If you would like us to assist you by reviewing your current plan, please contact a member of our Family Wealth Planning Practice Team or the Phillips Lytle attorney with whom you have a relationship.

 

Florida Estate Planning

The laws related to estate planning documents can vary between New York State and Florida. If a trust is to be created under and governed by Florida laws, there are specific requirements for execution (i.e., signing and witnessing), trust administration and tax treatment. The ability of an individual to act as a fiduciary for an estate is more restrictive in Florida than in New York State. To grant an agent certain banking authority, specific statutory language must be included in a Florida power of attorney. In some cases, the documents created and executed in accordance with New York State or Florida laws still work as intended in the other state. However, the distinctive differences between the two states oftentimes necessitate either updates to existing documents or the preparation of new documents, particularly when there is a change in residency.

In addition, the ownership of property in both states can be problematic upon one’s death. Proper advance planning can avoid the need for separate estate proceedings in each state that may otherwise be required to administer the property.

If you spend a large part of the year in Florida, are considering becoming a Florida resident, or just own property in Florida, a discussion regarding your estate planning options is encouraged. Having estate planning documents specific to Florida might not only assist you in times of need while living, but can also streamline administration of your estate upon death.

Additional Assistance

Phillips Lytle’s Family Wealth Planning attorneys Kenneth A. Grossberg, partner, and Lucy M. Berkman, special counsel, are licensed to practice law in Florida, as well as New York, and regularly assist clients in the preparation of estate planning documents, including trusts, that conform specifically to Florida law. To discuss the options available to suit your individual needs, please contact Mr. Grossberg at (716) 847-7017 or kgrossberg@phillipslytle.com, Ms. Berkman at (716) 504-5746 or lberkman@phillipslytle.com, or any member of our Family Wealth Planning Practice Team.