If House is Placed in Irrevocable Trust, will Line of Credit be Countable by Medicaid?
If property has a line of credit from a reverse mortgage available before being placed in an irrevocable trust, can Medicaid consider the line of credit as a countable asset while in the trust?
No, but it’s probably an unworkable strategy for a couple of reasons. First, transferring the house to the trust may violates the terms of the reverse mortgage, possibly triggering the repayment of the mortgage. Second, for the trust to work in terms of Medicaid protection, the reverse mortgage funds must be made inaccessible to the homeowner. This is one of the reasons it may violate the terms of the reverse mortgage, since it is supposed to be for the benefit of the senior homeowner. Otherwise, why would they have taken it out in the first place?
While an irrevocable trust probably doesn’t make sense in this case, the reverse mortgage would not prevent the creation of a life estate with the remainder interest in the house going to the homeowner’s children or other beneficiaries. The line of credit will not be a countable asset and the house would escape Medicaid estate recovery upon the homeowner’s death. If the house is sold during the homeowner’s life, some of the proceeds would belong to the remaindermen based on the homeowner’s age at the time of sale.