How Can I Protect My Real Estate from Future Medicaid Claims?

 In Asset Protection, Long-Term Care Planning

Photo by Juan Cruz Mountford on Unsplash


I am 72 years old and in good health at the present time. However I own a piece of land with an estimated value of $1,000,000 but do not own a home or anything else of value. What is the best way that I can avoid Medicaid taking the property if I have to go to a nursing home? I would like to leave this to my two sons. I have considered creating an LLC or a gifting trust. Any advice?


The best answer is probably a life estate or an irrevocable trust. A life estate is simpler; it is a deed to your sons with you retaining the right to use and occupancy of the property during your life. This means that you would be entitled to any income earned from the property and would be obligated to pay any taxes, property insurance, and other maintenance costs.

An irrevocable trust has more flexibility—permitting you to receive the income or provide that it stay in the trust or be distributed to your sons. You could also name your sons as the trustees, giving them the responsibility of managing and maintaining the property. In short, you can tailor the trust in many ways.

I’m assuming that you do not want to sell the property during your life. However, if you did and it were in a life estate, a portion of the proceeds would go to you and a portion to your sons, the ratio depending on your age at the time of the sale. If the property were in trust, all of the proceeds would remain in the trust.

Creating both the life estate and the trust would make you ineligible for Medicaid benefits during the subsequent five years. One benefit of the life estate is that if you were to need care, your sons could return their interest to you, “curing” the five-year penalty period. That would not be the case with a trust; your sons would have to come up with the money to pay for your care during the balance of the five-year waiting period.

Both the life estate and the trust would give the property a step-up in basis at your death, avoiding any capital gains were your sons to sell the property after they inherit it (other than for an increase in value after your death).

As you can see, the choices are a bit complicated and depend on your expectations of the future. As I often tell my clients, while we do our best to make the best choices, we can only be certain on the correct path in the future when we’re looking back and know what happened. In any case, I strongly recommend that you consult with a local elder law attorney. She can advise on which method—life estate or irrevocable trust—is preferred in your state and the particular restrictions on irrevocable trusts in your state. With up to $1 million at stake, it’s worth the investment of the legal fees.


Related Articles:

What are the Tax Consequences if I Transfer Real Estate into Trust?

How Can I Protect Out-of-State Property from Medicaid Estate Recovery?

If House is Placed in Irrevocable Trust, will Line of Credit be Countable by Medicaid?

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