Medicaid Planning and Multiple Real Estate Interests: An Overview




Many Michigan families own a second property, and preserving that property for future generations is almost always an important goal. However, Medicaid qualification rules only exempt a homestead (up to a certain limit of value in some circumstances), which only protects one property. Medicaid also has a five year “look-back” rule preventing applicants from simply giving their property away or selling it for less than fair market value in order to qualify for Medicaid. For an owner of multiple properties who has learned he or she will need to apply for Medicaid, the first concern often revolves around what will happen to the second property. 

Fortunately, there are options which will allow a second property to stay in the family and allow the owner to qualify for Medicaid.  However, some of the options may only be done five years before applying for Medicaid (the look-back window). That is, waiting to accomplish a transfer until five years or less before the property owner applies for Medicaid will be too late in some circumstances. Ideally, a second property owner will be able to review the available options with an estate planning attorney in advance of the five year look-back window, and make a determination as to which best suits his or her needs. On the other hand, we can’t always anticipate needing Medicaid five years in advance. If the five year look-back clock has already started, there is still hope, and an estate planning attorney can review the options that are still available inside of the five year Medicaid window.

The following is a very brief overview of some of the more widely used options available throughout the Medicaid application timeline. Each method has its own pros and cons covering a wide range of complexity, cost, certainty as to approval, availability based on the particular circumstances, and favorability of tax treatment including income tax issues, gift tax issues, and property tax issues. Accordingly, these options should be discussed with an estate planning attorney who is familiar with the intricacies and details of each option before determining the best way to proceed.

Any time

  • Qualify the property that is highest in value for the Homestead Exclusion, or purchase a higher value property to be used as the Homestead Exclusion. Be sure to consult your attorney as to the value limits for the Homestead Exclusion, which may vary based upon your circumstances;
  • Use an Adjoining Property Exclusion (though there are time restrictions if a Lion Cub Deed is used. A Lion Cub Deed is a form of joint ownership where you transfer anywhere from 1%-49% share in the property to your intended beneficiary, while retaining the remaining percentage for yourself).

Outside of the Five Year Medicaid Window

  • Transfer the property outright to the intended beneficiaries;
  • Transfer the remainder interest in a property while retaining a life estate or life lease (the ability and right to continue living in your property for as long as you live, but upon your death, you no longer have the ability to direct to whom the property will pass);
  • Execute a Reverse Lion Cub Deed (a form of joint ownership where you transfer anywhere from a 51%-99% share in the property to your intended beneficiary, while retaining the remaining percentage for yourself) ;
  • Transfer the property to an Irrevocable Trust.

Inside of the Five Year Medicaid Window

  • Petition the court for an increased Protected Spousal Amount, which may allow you to qualify for Medicaid while keeping additional funds;
  • Preserve the value of a second property, though not the property itself, by converting the property proceeds into an exempt asset or income stream. The proposed asset(s) and level of the proposed income stream should be discussed in advance with your attorney.

Clearly, there are many considerations involved when trying to navigate the Medicaid application while saving a second property in the process. Like so many other aspects of estate planning, this is an area where it can truly never be too early to plan – it can only be too late. To learn more about your options for preserving a second property while qualifying for Medicaid, contact Mammel Law at 248-644-6326.

Share on FacebookShare on Google+Tweet about this on TwitterShare on LinkedInEmail this to someonePrint this page