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Question:

My mother owns her home and her two sons, one who is disabled have lived with her for over eight years. In the last three years she has developed dementia. My brothers took care of her until her safety became an issue. She has four other children who also took part in her care. She could not be left alone. She was placed in Memory Care at the beginning of 2023. Medicaid wants to put a lien on her home. We are trying to apply for the Child Caretaker Exception. Is there a form or do we just do the transfer and let Medicaid know? We don’t know how to start the process.

Response:

Let’s start by explaining the difference between the Medicaid lien and the caretaker child exception. When a nursing home resident receives Medicaid coverage of their care, the state Medicaid agency may put a lien on the property to make sure its repaid its expenses either upon the property’s sale or the owner’s death. The latter is known as “estate recovery.” There are exceptions that prevent the state from placing a lien on a house, one of which appears to apply in your case, which is if a disabled child of the owner is living in the house. Providing information about your brother’s disability and living situation should prevent a lien from being placed.

However, what’s often confusing is that the avoidance of a lien does not necessarily mean that the house escapes estate recovery upon the Medicaid beneficiary’s death. This can often be a trap for the unwary since people assume since there’s no lien, there’s also no estate recovery. That’s not the case, though in some circumstances estate recovery may be avoided by pursuing a hardship waiver after the beneficiary’s death.

It’s safer to remove the house from the Medicaid recipient’s name so that it avoids estate recovery. Most transfers are penalized by a period of ineligibility for Medicaid coverage of up to five years. But some exceptions apply, two of which appear to be available in your situation. First, there’s no penalty for a transfer of the home to a disabled child of the owner or into a trust for their benefit. Second, there’s no penalty for a transfer to a “caretaker” child, which is defined as a child who has lived with the Medicaid beneficiary for at least two years before they moved to a nursing home and who provided them care during that time that kept them out of the nursing home.

How the caretaker child exception to the transfer penalty works can vary from state to state. There’s no form in my state. We often wait to make a transfer until after Medicaid has been approved, so it’s an issue for the ongoing unit rather than the eligibility one. That sounds like your situation. We make the transfer and submit a copy of the deed along with the evidence supporting the elements of the exception. These include:

1. Proof that the caretaker child lived with the parent for at least two years prior to the nursing home admission. This can be a driver’s license, voter registration, tax return, or anything else showing their address.
2. Proof that they provided care that delayed the nursing home admission by at least two years. This is usually a letter from the parent’s primary care physician describing the parent’s diagnosis and care needs. If the physician is unwilling to write such a letter, an affidavit by the child describing the care they provided often does the trick.

A local elder law attorney could advise you on the usual practices in your state as well as the best way to make the transfer — outright, in trust, or through a life estate or “ladybird” deed. Each of these options has different ownership and tax implications.

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Does Caretaker Child Exception Apply to Estate Recovery? Can I Avoid a Medicaid Lien on My Mother’s House? If My Father Moves to a Nursing Home, will Medicaid Take his House Where I also Live?