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Question:

Pursuant to a question you answered recently, I’d like a semantic clarification: the person had asked about Medicaid seeking reimbursement from the sale of his house. You said: “A state’s claim for reimbursement against your estate applies no matter where you live. However, many states only seek recovery against the beneficiary’s probate estate and you may be able to avoid the claim by using a trust, joint ownership, or a life estate to hold title to your new home and other assets.” My current house, soon to go on the market, is in my Living Trust (established 2006), and I’d planned to put my upcoming new home in my Living Trust as well. I live in California, and am moving to Oregon. Would my Living Trust be equivalent to your definition of a “Trust” or a “Life Estate”?

Response:

Yes and no. It is a trust, but not a life estate, and that difference is key. As you know, the federal government requires states to seek recovery of their Medicaid costs from the estates of deceased beneficiaries. In some states, this recovery is limited to the probate estate and in others its expanded to include non-probate property, such as those in revocable or “living” trusts. I checked with Tim Nay, a leading elder law attorney in Oregon, and he informed me that Oregon has expanded estate recovery, meaning that it would week reimbursement from your home in a revocable trust. In order to protect it, you would have to make the trust irrevocable. A life estate would also work because that involves conveying a property interest to the people you would like to receive the property after your death.

In Massachusetts, where I practice, the revocable or “living” trust effectively avoids probate and Medicaid estate recovery, but our Medicaid agency has unique a work around. It forces applicants to remove the house from the trust before it will grant them eligibility, thus defeating the protections of the trust. The only ways to protect the house here are through an irrevocable trust that bars distributions back to the grantor or through a life estate.

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