In most instances, you can own a home and still get MassHealth coverage of your health or long-term care. While MassHealth has strict income and asset limits on eligibility, in most cases it doesn't count the home against those limits. On the other hand, as I often say, while they don't get you coming, they will get you going. If you sell the house either during your life or upon your death, MassHealth will seek to recover its costs of paying for your care.
If you are living in your home and you or your spouse is receiving community benefits, there's no limit on the value of your home. Likewise, if you are receiving nursing home care and your spouse is living at home, you can keep it no matter its value. And even if you are single and in a nursing home, your house will not be counted against the MassHealth asset limit of $2,000 (for nursing home residents) as long as you (1) state an intent to return home and (2) your equity interest in the home has a value of less than $828,000.
While you can keep your home in most instances, MassHealth has the right to recover its costs of paying for your care through two methods. The first is by putting a lien on the house to secure repayment in the event you sell the house. The second, known as "estate recovery," is its right to repayment from your probate estate at your death. In most cases, your only substantial asset at death will be your home, since the rest of your savings will have to be spent down to qualify for MassHealth in the first place.
With proper planning, both a lien and estate recovery can be avoided. In considering planning techniques, you will need to distinguish between advance planning and crisis planning. Advance planning involves taking steps well before any need for long-term care may occur. Crisis planning takes advantage of opportunities that may be available even after you have a need for long-term care. The four planning options described below all involve advance planning, each with its own pros and cons. In a future blog post, I will discuss crisis planning steps you may take to protect the home.
- Give it away. If you transfer your home to the ultimate beneficiary or beneficiaries of your estate, presumably your children, they will own it and it will not be subject to any claim by MassHealth. Be aware, however, that once you do so, there will be a five-year wait for nursing home MassHealth coverage due to its transfer penalty. An outright transfer also has the following drawbacks and risks: (a) You no longer own the house, so you will not be able to draw on its equity to pay your expenses without your children cooperating. (b) Likewise, you will not be able to sell the property and purchase another without your children's consent and cooperation. (c) Your children could decide that it's time for you to move from the house before you're ready. (d) Your children would likely pay a higher tax on capital gain on the sale of the house both during your life due to the loss of the homeowner's $250,000 exclusion or after your death due to the loss of the so-called "step up" in basis upon your death. (e) The house could be subject to claim if one of your children were sued, went through a divorce, or passed away before you did.
- Life estate. A life estate is a form of joint ownership where the life estate owner has the exclusive right to live in the property during his life and then at his death, it passes automatically to the so-called remaindermen. Since it avoids probate, MassHealth has no claim for estate recovery after you pass away. Contrasting the life estate with the drawbacks of an outright transfer, (a and b) you would still need your children's cooperation to sell or mortgage the property during your life. If it were sold, the proceeds would be divided between you and your children based on tables that take into account life expectancy and current interest rates, the older you are, the smaller your share and the larger the share of the remaindermen. Your share would be subject to claim for reimbursement to MassHealth. (c) No one can kick you out of the house. (d) Your children would receive a step up in basis at your death, avoiding an unnecessary tax on capital gain after you pass away. If you sold the house during your life, you could use your $250,000 exclusion against your share of the proceeds but not to reduce the tax on the capital gains attributable to your children's share. (e) While the ownership interest of each of your children in the life estate could be subject to claim during your life, no creditor or ex-spouse could take possession. Your right to occupy the premises would continue. To learn more about life estates, read What is a Life Estate and Why Would You Want One? - Massachusetts and Life Estate Owners: Beware Solvency of Remaindermen - Massachusetts.
- Irrevocable trust. A transfer of your home to an irrevocable trust for your benefit has certain advantages and disadvantages in comparison to an outright transfer or a life estate. Reviewing the same elements, (a) unlike the other two options, you would not need your children's cooperation to sell the house. (b) However, you probably would not be able to get a conventional mortgage or line of equity for a property in an irrevocable trust. (c) As with the life estate, you could stay in the house for as long as you like. (d) After your death, your children would get a step up in basis as with a life estate. It's not clear whether you would be able to use the $250,000 capital gains exclusion for a sale during your life. MassHealth has been attacking irrevocable trusts (more on this below), which has meant that we and other elder law attorneys are drafting them in ways that are more restrictive and thus no longer guarantee use of the capital gains exclusion. (e) The irrevocable trust protects your home from any claim or unfortunate circumstance happening to your children. The main drawback of an irrevocable trust over a life estate is that it cannot be reversed if you were to need care during the five years following its creation. While the creation of both a life estate and a trust create a five-year transfer penalty, if they're cooperative, your children can convey back their interest in a life estate in case you needed MassHealth coverage during the subsequent five years and, as a result, undo the transfer penalty. This is not possible with an irrevocable trust. Advantages of the trust over the life estate include total protection of the proceeds of a sale during your life and protection for the home and for you in the event your children fall on hard times or disagree with you on how to manage the property.
- Long-term care insurance. If you are insurable and can afford to purchase long-term care insurance, doing so can have at least two highly beneficial results. First, you will be less likely to need MassHealth because of your insurance coverage, and even if you do ultimately need to apply for benefits. Second, MassHealth has a unique regulation that exempts the home from estate recovery if the owner has remaining long-term care insurance benefits when she moves to a nursing home. In other words, this exemption applies if she hasn't used up all of her benefits on home health or assisted living care. Of course, the issues of insurability and affordability may rule long-term care insurance out as an option.
As you can see, the pros and cons of these approaches are complex and it's difficult to predict in advance which will be the most beneficial for each client. However, each client's situation will include factors that argue for using one approach or another. An experienced elder law attorney can help you make this determination.