My current house, soon to go on the market, is in my “Living Trust” (established 2006), and I’d planned to put my upcoming new home in my Living Trust as well. I live in California, and am moving to Oregon. Would my Living Trust protect my new home from Medicaid estate recovery upon my death?
Perhaps in some states, but not in Oregon. Medicaid is the payer of last resort for long-term care services. To qualify, you must spend down your assets, but may keep your home within certain limits on its value. However, the federal Medicaid rules require the states to seek recovery for their expenses from the estates of deceased beneficiaries. Since for the most part the only assets Medicaid beneficiaries have are their homes, that’s what is usually subject to this claim.
Unfortunately, in terms of providing a comprehensive answer to your question, each state has its own estate recovery rules. Some only seek recovery against the beneficiary’s probate estate and others against both probate and non-probate property. A revocable or “living” trust would keep your home out of probate and thus protect it from estate recovery in those states that use the narrower definition for its estate recovery program.
I checked with Tim Nay of the Law Offices of Nay & Friedenberg in Portland, Ore. He informed me that “Oregon adopted the expanded estate definition” for its recovery program, meaning that a revocable living trust would provide no protection.
In Massachusetts, where I practice, the Medicaid program (which we call MassHealth) has come up with a creative workaround. The legislature has limited estate recovery to the probate estate, which would seem to mean that homes in revocable trusts would be protected. But in order to make them subject to claim, the state requires applicants for benefits to remove their homes from such trusts in order to be eligible, thus dumping them back in the beneficiary’s probate estate.
Those who wish to protect their homes from estate recovery must transfer them to irrevocable, as opposed to revocable, trusts. These work, but there’s a five-year waiting period (often called a “lookback”) after the transfer during which the owner is ineligible for Medicaid benefits. Another planning technique is a life estate, or in some states a “Lady Bird,” deed that gives the grantor the right to live in the property for life, but transfers it to the named individuals automatically at death. This also causes a five-year waiting period for benefits.
Harry S. Margolis is an elder law and estate planning attorney in Boston and Wellesley, Massachusetts. He is author of The Baby Boomers Guide to Trusts: Your All-Purpose Estate Planning Tool and answers consumer questions about estate planning issues at www.AskHarry.info.
Harry Margolis practices elder law, estate and special needs planning, and is the majority owner of ElderLawAnswers.com.