Real Estate and Florida Medicaid Planning

Medicaid planning issues have been hot topics in recent years, and this trend is not likely to slow down.  With substantial ongoing “governmental” changes and a massive number of aging baby boomers, this issue is front and center for many families.

One of the big questions for Medicaid planning is how the ownership of assets relates to getting qualified.  In other words, if you or a loved one own real estate assets in Florida and are nearing the point that long term “skilled nursing care” may be necessary for treating a chronic medical condition, what is the best course of action?

If this is your situation, whether for yourself or a loved one, you may be asking common questions such as:

Will I lose my home?

Will the nursing home take all my assets?

Do I need to liquidate my real estate to qualify?

Should I transfer assets to my kids?

These questions are the focus of today’s article…

Defining Medicaid in Florida 

As a bit of background, Medicaid is a “need based” and “means tested” program that is intended as “payor of last resort” for those who are in dire need of long term skilled medical “nursing” care.  There are many options protecting assets in the pre-planning process during your Florida estate planning or even during the process of applying for Florida Medicaid.

Protection of the Primary Residence and Florida Medicaid

 A Primary Residence Will Generally Not Be Defined As A Countable Asset For Medicaid Qualification Purposes Subject To Certain Conditions.

The treatment of one’s personal residence or “Florida homestead” varies depending upon the jurisdictional (State) laws; however, the general rule is that the primary residence will not be counted as an asset if there an intent by the Medicaid applicant and a reasonable probability of returning to live there.  Note, the probability doesn’t need to be good…just a reasonable and albeit hopeful expectation.

With that in mind, there is a really important distinction to understand here!  There is a big difference between an asset not being “countable” and an asset being protected from a lien to be attached for Medicaid recovery.  A nursing home care facility will sometimes suggest that a home is protected but neglect to inform the home owner that it may be subject to a Medicaid lien.  The only way to protect the home from the lien would be to transfer it to a “well spouse”.  As I’ve discussed in a previous article, transfers between spouses are not penalized under the Florida Medicaid rules.    Because the home is not countable, if a well spouse holds full title, it would be protected and not subject to liens for the ill spouse’s Medicaid repayment.

Real Estate Investments and Florida Medicaid Protection

Real Estate Assets That Are Not Deemed A “Primary Residence” May Still Be Deemed “Not Countable” If They Are Income Properties Producing A Reasonable Return On Investment.

Under the current Medicaid rules, assets that are producing an “income” are not typically also defined as an “asset”.  The idea behind the income/asset distinction, in my opinion, is that if the applicant is relying on the income, then the asset is not available for sale by the applicant and is not countable.  Thus, one way to hold real estate assets and still pursue Medicaid qualification is to rent out real property, at a reasonable market rate and backed by solid lease agreement that would pass muster under the Medicaid rules.  There are formulas to evaluate the ROIs and there are suggested lease terms to help ensure that this strategy would be effective.

Using Life Estates and Transferring Assets and Florida Medicaid Concerns

Strategies Such As Purchasing a Life Estate, Reserving a Life Estate, or Transferring Assets To Adult Children May Result In Penalties or Disqualification From Medicaid Benefits. Any “transfer” of real property for “less than full market value” can result in a penalty under the Medicaid rules.

In a previous article, I discussed how the Medicaid transfer penalties work.  There was a time when a “life estate”, which is basically a “life interest” in real property was a good strategy for protecting assets in Medicaid.  The idea used to be that an elderly person could either purchase a life estate from a family member in an existing real property, thereby spending some “countable” liquid assets, or,  the elderly person could convey real property and reserve a life estate for themselves…finding a way to protect the asset and render it not countable.  However, Medicaid has become more strict about life estates and only allow this strategy if the elderly person actually lives in the home, and thus we’re back to the primary residence exemption.

Another common approach is to transfer real property assets to adult children in the hope of thereafter qualifying for Medicaid.  As I’ve written in the past, there is a 60 month “look back” period in most states for transfers of less than Fair Market value and penalties can result from these transfers.  Also, transferring assets to children can be problematic for other reasons such as divorce and bankruptcy.

A couple of other thoughts about protecting real property are, if the property is for sale, Medicaid may elect to go ahead and qualify the individual rather than hold them hostage awaiting the sale provided the property is listed with a real estate broker and offered at Fair Market Value.  Fair market value is usually determined by licensed realtor, and any facts revealing deterioration of the real property can be helpful establishing why the value may be lower than average.

So, now you have some key insights about real property as it relates to the Medicaid rules.  Remember that this article does not focus on the income limits under Medicaid and this is another matter to consider.  All of this is a highly complex area, and every strategy should be carefully considered with your favorite expert elder law attorney.

Sincerely,

Steve Gibbs, Esq.

This is an updated version of an original post dated March 3, 2016.