PROTECTING YOUR HOME FROM THE COST OF LONG-TERM CARE
By Stella King, Esq.
For many people, their house is their most valuable asset and worthy of protection at all costs. Yet, only those with the foresight to plan ahead recognize that one of the greatest expenses they will face over the course of their lives is the cost of long-term care. The pragmatists among us recognize that, down the road, they may need an aide at home to assist with their activities of daily living (e.g., bathing, dressing, toileting, meal preparation) or care at a skilled nursing facility. Those who fail to plan are quick to learn that these costs are exorbitant and can rapidly deplete their life savings, at which point the only long-term care option available becomes Medicaid. While the homestead is an exempt asset for Medicaid eligibility purposes (i.e., an individual can financially qualify for Medicaid notwithstanding the ownership of the home), once an individual has received Medicaid benefits, the home becomes an asset against which Medicaid may assert a claim or place a lien in order to recoup the funds expended. With proper planning, however, one’s primary residence can be sheltered from the cost of long-term care and passed on to loved ones upon their demise.
To this end, a common tool used by elder law attorneys is the irrevocable Medicaid Asset Protection Trust (MAPT). Title to the home—and, if desired, other liquid non-retirement assets—is transferred to the Trustees of the trust, while the original homeowners reserve the right to live in the home for the rest of their lives. The transfer of the home (and any other monies) to the trust triggers a “lookback” period (or a period of ineligibility for Medicaid), however, once the lookback period expires, the house and other assets titled to the trust will be fully protected for Medicaid purposes. If the home is sold, the proceeds of sale are paid to the trust and can be used to purchase a new residence owned by the trust subject to the same terms. Transferring one’s home to an MAPT can also be beneficial from an estate and gift tax perspective, affording the trust creator more advantages than an outright transfer of the residence, with or without a life estate. The trust can be drafted in such a way that it avoids gift taxes, allows the trust creator to maintain the principal residence exclusion and real property tax exemptions (e.g., STAR, Senior Citizens, Veterans), and gives the beneficiaries of the trust a step up in cost basis upon the death of the transferor, thereby reducing, or sometimes eliminating, capital gains consequences. None of us know what the future holds, but with advance planning while one is young and healthy, one can take the steps necessary to plan for their future and preserve their most valuable asset.
