A home is often one's largest single asset, and even when it’s not, it can still be viewed as somehow more worthy of protection than money in the bank. It provides a place to live, and can be associated with many fond memories. So it’s no surprise that many clients are often most concerned with how to protect their house in the event they need long-term care, which for most is a catastrophic, unaffordable expense. Most people do not have long-term care insurance and many are uninsurable, even if they could afford it.
So what can you do to protect your house from a forced sale or a MassHealth lien? (“MassHealth” is the name for Medicaid in Massachusetts.) While there’s no magic bullet or perfect solution for everyone, there are a some options. The big question is what is the right fit for the situation, because anything comes with some downsides and inherent risk. But for many, the protection is worth it. The right choice is dependent on your plans for the house, family situation, what other assets you may have, and how highly appreciated your house – the difference between what you paid for it and its current market value, among other considerations.
Here are the choices:
1. Give your house to your children. One option that is almost always a bad idea is just giving away the title to your house. Even if you have a good relationship with a child, there are usually very negative tax consequences, in addition to the fact that you are putting yourself at risk in the event the child gets sued, divorced, or one day simply decides to tell you to take a hike.
2. Life Estate. Two options that are commonly considered to protect the house and avoid these risks are a life estate and an irrevocable trust. Both provide similar legal protections, the most important of which is that you maintain the right to live in the house for the rest of your life and are generally not vulnerable, regardless of what may happen with your children. Both have a five year look-back period for MassHealth under current law, meaning you generally cannot apply for MassHealth for five years from the time of signing the deed. Both permit the property to be sold if advisable, but there are some restrictions on what can be done with the proceeds. A life estate is easier to accomplish since it can be coated through a deed. However, it provides less protection if the house is sold.
3. Irrevocable Trust. Putting your house in an irrevocable trust would protect the proceeds if the house were solo. Other differences include treatment of capital gains taxes upon a sale, as well as whether the proceeds are distributed outright or held in further trust.
4. Do nothing. While simply leaving your house in your name leaves it vulnerable to long-term care costs, it gives you complete control and flexibility, as well as access to the equity in your home if needed.
Ultimately, a decision on which option (if any) is best must be made on a case by case basis. Meet with an attorney who specializes in elder law to make an informed decision about what is right for you.
Learn more about Masshealth planning here: