Real Estate Planning Ideas for a Married Couple

Real Estate Planning Ideas for a Married Couple

Protection of the home is the most common and most significant Medicaid planning and eligibility issue. Unfortunately, the planning possibilities are often overlooked. Some of the techniques (e.g. spousal planning) are rendered uncertain due to Medicaid’s position that the failure of a surviving spouse to exercise elective share rights gives rise to a period of ineligibility (see N.J.A.C. 10:71-4.10(b)3., see also Comment 8). Relevant administrative regulations are included for reference.

Planning Ideas for the Married Couple

A. Significant Medicaid rules to consider in the planning process.

1. Transfer rules do not apply to the transfer of the home to designated individuals.

i. spouse

ii. child under 21 or child who is blind or disabled

iii. a sibling who has an equity interest in the home and who was residing in the home for at least one year prior to the date of institutionalization

iv. son or daughter who resided in the home for at least two years prior to institutionalization and provided care which permitted individual to reside at home rather than go to a nursing home.

2. The home constitutes exempt property if resided in by spouse.

3. If home owned by applicant and not resided in by spouse or applicant is unmarried, an absence of more than six months is assumed to indicate that the home is no longer the principal residence - N.J.A.C. 10:71-4.4(b)1.i.

4. After determination of eligibility for Medicaid, no resources of the community spouse are deemed available to the institutionalized spouse.

B. Transfer of home to spouse

1. Typical factual situation: Potential Medicaid recipient and spouse own residence as a tenancy by the entirety. Assume individual qualifies for Medicaid and after qualification, community spouse predeceases and residence passes by operation of law to the Medicaid recipient. In such a case, the residence is no longer exempt and the house would have to be sold and the proceeds applied to payment of nursing home costs before Medicaid eligibility would be reinstated.

2. Planning recommendation: Potential application should transfer interest in the home to the spouse. Spouse should devise residence to someone other than institutionalized individual. Assuming applicant and community spouse had no other assets, such disinheritance would be treated as a transfer by applicant under the new regulations. It is recommended that there be separate counsel for each spouse for this transaction.

Note: If property remained in joint tenancy, there would be no estate recovery upon the death of a Medicaid recipient survived by the community spouse. However, New Jersey Medicaid authorities take the position that if such property remains in the name of the community spouse, upon the death of the community spouse, the estate recovery provisions will apply to said property (with respect to Medicaid costs of the application). Therefore, a transfer of title into the sole name of the community spouse removes the property from the “estate” of a Medicaid recipient, and, therefore, from the estate recovery provisions.

3. Recommendations regarding subsequent sale of residence by community spouse after transfer: Community spouse should not sell residence until after institutionalized spouse qualifies for Medicaid at which time the resources of the community spouse are no longer deemed available to the institutionalized spouse. If the residence is sold by the community spouse before the institutionalized spouse qualifies for Medicaid, the proceeds become an available resource.

Contrast: Residence remains in joint names and is sold after institutionalized spouse qualifies for Medicaid. At such time, one-half the proceeds are allocated to the community spouse and one-half the proceeds are allocated to the Medicaid recipient, who would then lose Medicaid eligibility.

4. It is noted that a re-transfer of the home by the community spouse is not a protected transfer and is subject to transfer penalty. However, a transfer of the home by the community spouse after the institutionalized spouse qualifies for Medicaid should not result in a transfer penalty.

Comment: As indicated above, the regulations provide that the failure to exercise elective share rights is treated as transfer by the applicant and gives rise to a period of ineligibility. Therefore, the will of the community spouse and disinheritance become an issue. Notwithstanding, the above analysis presents several compelling reasons for transferring the residence to the community spouse (sale of residence by community spouse after eligibility, avoidance of lien if Medicaid recipient predeceases community spouse, avoidance of residence passing to Medicaid recipient by “operation of law” if community spouse predeceases, avoidance of loss of eligibility if residence sold while in joint names).

C. Purchase of home by community spouse

1. Typical factual situation: Potential Medicaid recipient and spouse reside in a rented apartment. Couple have $350,000 in liquid resources. Individual enters nursing home.

2. Planning recommendation: Residence should be purchased in name of community spouse. The home constitutes exempt property if resided in by spouse. Community spouse should not sell residence until after applicant qualifies for Medicaid.

3. The above is another example of the purchase of an excludable resource to protect funds.

D. Recent sale of home

1. Factual situation: Couple with minimal resources have recently sold their jointly-owned residence in anticipation of the need for monies to pay husband’s nursing home costs (not being aware of Medicaid rules). Husband enters nursing home several days prior to seeking advice of counsel).

2. Recommendation: Community spouse should immediately purchase another home with the proceeds of sale from the prior home. N.J.A.C. 10:71-4.4(b)8.(ii) indicates that the proceeds of sale constitute an excludable resource to the extent utilized to purchase another home within three months of the date of receipt of the proceeds.

Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.


© March 2009, Post #11