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Factors to Consider When Advising Clients on Medicaid Transfers

(approx. 2 minutes reading time....)

At least once a week, someone calls our office asking about transferring a home so that they can receive long term care benefits through New York Medicaid.  We approach these calls with caution; assisting with the transfer, without explaining the consequences and other options, may result in unintended consequences for the client and liability for us.  In contrast, helping clients understand the home equity limit ($893,000 in 2020[1]) and the implications of an outright transfer, gives them the context necessary to make an informed decision.[2]

Once the client understands some context, we can introduce other options which may work better for them. Generally, we are comparing three options: transferring the property outright to heirs, transferring the property subject to a life estate, or transferring the property to a Medicaid Asset Protection Trust (an “MAPT”).  Each option provides two primary benefits: (1) the property is no longer available for Medicaid purposes, and (2) the property is no longer subject to estate recovery after the individual’s death.  However, the risks associated with the options vary significantly and are outlined below.

  1. Outright Transfer to Heirs
    • Complete loss of control over property
    • Property becomes subject to creditors of transferee(s)
    • Full transfer penalty applies
    • Tax benefits lost
  2. Transfer Subject to Retained Life Estate
    • Partial loss of control over property
    • Partial transfer penalty applies
  3. Outright Transfer to an MAPT
    • Partial loss of control over property
    • Full transfer penalty applies
The tax benefits referenced above include (1) tax abatements applicable to the individual, but not to heirs, (2) the basis “step-up” that would occur upon the individual's death, and (3) the capital gains exemption (IRC Section 121(a)), that may apply to proceeds when the property is sold.  These benefits can be retained if the property is transferred into an MAPT and partially retained if the property is transferred subject to a life estate. 
To conclude with an example: Clara is 75 and widowed.  She owns her single-family home, which she purchased with her late husband in 1982 (their cost was $100,000).  The property is now worth $500,000.[3]  Clara has two sons and is considering transferring the property to them.  Once Clara has a sense of the tax consequences; namely, loss of her tax abatements and the rather large remaining “step-up,” she may be open to either transferring subject to a life estate or transferring to an MAPT.   In her case, this choice may come down to legal costs, but whether she chooses the life estate or MAPT, she and her sons will be in a better position than if she had transferred the property outright. 

~ Emily Joseph practices at Weiss Law Group, PLLC

[1] New York Department of Health, Office of Health Insurance Programs, GIS 19 MA/12, 2020 Medicaid Levels and Other Updates (Dec. 19, 2019). 
[2] Another portion of orienting the client is explaining how all of this relates to eligibility, maintaining their home, and estate recovery differently, but that is outside our scope for now.
[3]It is important to note that ownership of her home does not make Clara ineligible for Medicaid because she is below the home equity limit.
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The following are actual statements placed on insurance forms where the car's driver attempted to summarize the details of their accident in the fewest words possible.

•  Coming home I drove into the wrong house and collided with a tree I don't have.
•  The other car collided with mine without giving any warning of its intentions.
•  I thought the window was down, but I found out it was up when I put my head through it.
•  A truck backed through my windshield and into my wife's face.
•  A pedestrian hit me and went under my car.
•  The guy was all over the road. I had to swerve a number of times before I hit him.
•  I pulled away from the side of the road, glanced at my mother-in-law, and headed over an embankment.
•  In my attempt to kill a fly, I drove into a telephone poll.
•  I had been shopping for plants all day and was on my way home. As I reached an intersection, a hedge sprang up, obscuring my vision and I did not see the other car.
•  I had been driving for 40 years when I fell asleep at the wheel and had an accident.
•  The pedestrian had no idea which way to run, so I ran over him.
•  I was on my way to the doctor with rear end trouble when my universal joint gave way causing me to have an accident.
•  As I approached an intersection a sign suddenly appeared in a place where no stop sign had ever appeared before. I was unable to stop in time to avoid the accident.
•  To avoid hitting the bumper of the car in front, I struck the pedestrian.
•  My car was legally parked as it backed into the other vehicle.
•  I told the police that I was not injured, but upon removing my hat, found that I had a fractured skull.
•  I saw a slow moving, sad faced old gentleman as he bounced off the roof of my car.
•  The indirect cause of the accident was a little guy in a small car with a big mouth.
•  I was thrown from my car as it left the road. I was later found in a ditch by some stray cows.
•  The telephone pole was approaching. I was attempting to swerve out of its way when it struck the front of my car.

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