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How Can I Avoid Losing My Estate to Medicaid Liens?

Medicaid is a state-administered federal program intended to provide assisted living facilities for elderly persons who can no longer live on their own. It is intended as a safety net for those who run out of assets before they pass away. As such, it is only intended as a resource to be tapped after one’s own assets have been exhausted.

Consequently, many states – including Idaho – make it almost impossible to retain substantial assets while also receiving Medicaid benefits. And this is as it should be. As taxpayers, all of us should expect our government to be frugal in deciding who is really in such need that the state should step in and protect and care for them.

Determination of Medicaid Benefits: To screen applicants for Medicaid benefits, the state asks for certain financial information. First, it wants to know what assets a person has available to pay for his or her own necessities. A person who has resources available will be expected to use up most of those assets before beginning to receive Medicaid assistance.

Second, the state will ask about any assets that the applicant has given away or sold for less than they were worth during the last five years. Even if an applicant currently owns no assets, property given away during that five-year window will be attributed to them for purposes of calculating their entitlement to benefits. So, for example, if a person has given away $100,000 in cash just before applying for benefits, the Medicaid program will postpone benefits until the applicant has paid for the first $100,000 of assisted living costs. Then the state will begin covering the cost of the assistance from that point forward. The gift is not viewed as disqualifying for benefits. It just postpones the date upon which the state begins actually paying the benefits.

Preservation of Home: One related issue is the treatment of the applicant’s own home. Although the Medicaid program normally requires the applicant to spend down his or her own assets prior to receiving benefits, that requirement is not applied to the applicant’s home here in Idaho. Instead, the applicant is permitted to retain the home, but a “Medicaid Lien” is recorded against the property.

The Medicaid Lien will allow the state to recover all Medicaid benefits paid for the owner during the last five years before he or she passed away. Any equity in the house beyond the amount of those recovered benefits will continue to be paid to the heirs of the person who received the benefits.

Protection of Assets: With all of this in mind, the only way to protect assets against a Medicaid Lien here in Idaho would be to give them away (with no strings attached) at least five years before the person making the gift turns out to need Medicaid assistance.

If this is done, then when the need for benefits does eventually arise, the state’s screening process will ignore that gift since it occurred more than five years before the application for benefits is received.

Caution: Having said all of this, it is important to point out that giving your assets to a child, for example, is fraught with risks. It effectively means that the child owns the assets that are given away.

If there is a falling-out between the child and the parent who made the gift, the child is legally permitted to not share the items gifted with the parents. If the gift included the parents’ home, the child can sell the house and kick the parents out while they are still living.

More importantly, the house and any other assets given to the child will be subject to claims held by creditors of that child. For example, if the child causes an automobile accident that results in a judgment by the other party, the person that the child injured can force the sale of the parents’ home to satisfy that judgment. Again, the result is that the parents are kicked out of their own home.

The same thing is true if the child loses his or her own home to foreclosure and is left owing the lender on that home more than the home is worth. That lender may end up getting a judgment against the child and then having the parents’ home sold to satisfy the judgment. So even though the parents’ home may have been owned free and clear when it was transferred to the child, it may be lost altogether if the child’s finances are precarious.

With all of the foregoing in mind, for most people, giving assets away as a means of avoiding Medicaid Liens would be an unfortunate decision. It could result in them not qualifying for benefits just when they are needed. It could also result in the loss of the assets to creditors of the child to whom they were given.

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