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Rental Investment Property and Florida Medicaid

Rental Investment Property and Florida Medicaid

Qualifying for Medicaid benefits in Florida can make a huge difference in an individual’s quality of life.  Whether the applicant is elderly, disabled, a retiree of limited means in need of home-based care, or falls within another coverage category, Medicaid provides for access to healthcare that might otherwise be unavailable.  With this in mind, it’s not surprising that preserving Medicaid eligibility is a major concern for many elders in Florida.  Under the right circumstances, rental investment property and Florida Medicaid can go hand in hand by providing an effective method of meeting program qualifications without sacrificing too much of an applicant’s wealth.

Florida Medicaid Eligibility Requirements

The regular Medicaid program offered by the State of Florida is available to blind, disabled, or elderly applicants with limited income and assets.  Assistance is also available for eligible Florida residents in need of long-term care assistance in Florida or home and community-based services.  Income and asset limits for Medicaid are based on the federal poverty level and vary from year to year, by program, and according to household size.  For applicants in need of assistance with the costs of long-term care like nursing homes, the 2019 income threshold is $2,313 per month, and the asset limit is $2,000.

Medicaid planning is the art of organizing your personal finances in a manner that satisfies Medicaid’s income and asset tests as efficiently as possible.  This generally means arranging assets and income so as to remain within program guidelines.

For example, a Qualified Income Trust for Medicaid in Florida may allow for qualification even if income limits are exceeded. On the asset side, a Personal Service Contract or a Pooled Special Needs Trust in Florida may be used to hold assets and facilitate Medicaid qualification.

Along with regular wages, “income” includes funds received through a pension, alimony, Social Security benefits, withdrawals from a retirement account, and most other sources of regular cashflow.   “Assets” include cash, bank deposits, valuable personal property, and some real estate.

The first thought is often that downsizing for Florida Medicaid planning purposes is the only option. However, there are alternatives in many cases.  For instance, not all property is “countable” when calculating the asset test.  A personal residence for Medicaid planning purposes in Florida, for instance, is not counted unless it is worth more than $572,000.  Second homes or other non-residence real estate holdings normally count toward the asset test.  However, there’s an important exception that Medicaid planners have found particularly helpful when it comes to real estate holdings and Medicaid planning in Florida – rental properties.

Rental Properties in Florida Medicaid Eligibility

A rental property is not a countable asset if the property is regularly rented to a third-party and therefore qualifies as “income-producing property.”  The rent received must be reasonable considering the fair market value of the property and the area in which it is located.  But there’s no restriction against renting to a family member as long as rent is actually being paid and the property is therefore “income-producing.”  Importantly, an income-producing property excluded from the asset test does not need to be rented all year round.  So, a vacation home rented out during beach season could be excludable.

When you think about it, it makes sense that rental properties are not counted toward the asset test.  After all, if a property is “income-producing,” it is better thought of as an income source, rather than an asset in an of itself. The treatment is similar for an IRA or 401k in pay-out status. But this raises an important point – although a rental property is not included in the asset test, the income that it produces, minus expenses, does count toward the income test.

Rental property expenses, which are deducted from the overall income produced by the property when making eligibility determinations, are interpreted fairly broadly.  Real estate taxes, mortgage interest, and property insurance can be deducted – similar to federal income tax deductions – as can the costs of repairs and upkeep.  So, if you pay a landscaping service to cut the grass, the rental income is reduced by the landscaper’s fee.  Or, if you have to pay a plumber to fix a leaky faucet for your tenant, rental income is reduced by the amount paid.  Utilities are also excludable, but only if you actually pay them.  You can’t deduct the electric bill if the tenant is responsible for paying it.  Property management fees can also be excluded, but only up to ten percent of the gross rent received.

Rental Property Strategies in Florida Medicaid Planning

Rental properties are a popular strategy with Medicaid planners because they come with several significant benefits.

First, using assets which count toward the asset test to acquire a non-countable rental property is an effective means of reducing overall wealth below the threshold.  For instance, if you have investment accounts and bank deposits worth $100,000, you’re well over the $5,000 limit.  But, if you use those funds to acquire an income-producing condo, the wealth is now excluded.  Along the same lines, if you own real estate that is not your personal residence and which you are not renting out, you can remove it from your asset count by simply finding a renter or hiring a property management company to find one for you.

Second, a big benefit of rental properties is that they provide a vehicle for passing along wealth to heirs.  Assets relinquished as part of a Medicaid spend-down are no longer within your estate, but a rental property can be.  So, even if the rental income exceeds the limit and therefore ends up going to Medicaid, the property itself remains a substantial inheritance for your loved ones. You can even avoid probate in Florida by holding the property in a Florida living trust or reserving a life estate in Florida, with the remainder automatically conveyed to your heirs upon your death.

As mentioned above, the downside of rental properties in Medicaid planning is that the income produced counts toward the income limit.  If the monthly rent minus expenses (plus any other sources of income) is below the $2,313 threshold (for Nursing Home Medicaid), then it’s no problem.  You’re within the eligibility standards.  But, otherwise, you may need a QIT (“Qualified Income Trust), Miller Trust, or other Medicaid-planning strategy to preserve eligibility.

The trust approach can get a little technical, but what it boils down to is that the rental property is held in the name of a qualified trust that your Medicaid-planning attorney creates for you.  Then, the rental income is paid directly to a bank account in the trust’s name, and the trustee uses the money for qualifying health insurance premiums and medical expenses, or any applicable personal needs or spousal support allowances.  The remainder, if any, is subject to a lien in favor of Florida Medicaid or will be paid to the long-term care facility, depending upon the applicable Medicaid program. But, again, the property itself remains in your estate.

Because qualifying for Medicaid can be the difference between receiving necessary care and going without, it’s important to carefully plan before, during, and after the application process.  An experienced Florida Medicaid-planning attorney can help you determine if you are eligible for assistance and, if so, help organize your assets and income to preserve wealth efficiently while ensuring access to vital program benefits.

Steve Gibbs, Esq.

10 comments… add one
  • Laurie February 5, 2021, 5:40 pm

    Hi Steve,

    I read your informative article Thanks.

    Does my elderly mother have to purchase income producing property so many months or years before she applies for Medicaid? In other words, is there a timing issue?

    Was also wondering if I can contribute some of my own funds so that she can purchase rental income property that is suitable? Thanks for any quick information you can provide.

  • gibbslawfl February 9, 2021, 1:39 pm

    Hi Laurie, as general information, mother would just need to get this accomplished before applying for Medicaid. If you put funds in, this would need be done as a loan or properly documented shared ownership. Otherwise it’s a gift. Just things to consider. I highly recommend a formal consultation with a full review of assets prior to taking any planning steps because wrong moves can be very costly. Let us know if we can help by connecting with Gene at info@gibbslawfl.com.

    Best, Steve Gibbs, Esq.

  • Brian Sinclair February 14, 2021, 7:52 am

    How can you structure a creative financing solution that will allow for a senior citizen to leverage their estate as an annuity while remaining eligible to receive Medicaid during their stay at a assisted living community and the heirs will still receive the estate in inheritance?

  • gibbslawfl February 18, 2021, 1:33 pm

    Hello Brian, that’s a good question; however, in general only specific government approved annuities will qualify and these generally require Medicaid reimbursement. There are better ways than using annuities in my experience as featured in the article you commented on. By the way, “creative” and Medicaid planning options generally don’t blend very well. In the world of Medicaid planning, it is what it is:)


  • John February 20, 2021, 4:38 pm

    If my loved one has only $85000 of equity in his home and we just sold it while he’s in nursing home and has Florida Medicaid can we take that small amount and put it into “rental property” somehow to protect it? Isn’t that too little for a rental?

  • gibbslawfl February 22, 2021, 12:32 pm

    Hello John, whether the amount is “too little” is a financial and market question. I caution you that the sale of the home potentially jeopardizes the Medicaid qualification and a consultation with a Medicaid savvy attorney should’ve been done prior to the sale. There are other avenues; however, to consider in order to protect the Medicaid, and steps should be taken quickly.

    Best, Steve Gibbs, Esq.

  • John February 26, 2021, 4:32 pm

    Yes Medicaid was approved while in nursing home and with the sale of his home pending we’d need to protect the equity. So can these funds be used to purchase income producing real estate without owning a particular property and can it generate income monthly for him. What would you call this strategy and can you reference an article to read about it?

  • gibbslawfl March 3, 2021, 12:16 pm

    Hello John, I’m not aware of an Medicaid approved strategy such as a fractional ownership where the applicant wouldn’t own the particular property.

    It sounds like a consultation is needed.

    Best, Steve Gibbs, Esq.

  • Ron Hughes September 20, 2021, 6:57 pm

    I am the only stockholder in an s corp that owns 14 rental units all on one property that can not be subdivided as per county planning commision .I am 68 yrs old and I want to leave this to my son .Can I simply add him as a stockholder with a 2nd to die clause in the operating agreement property is in virgina

  • gibbslawfl September 22, 2021, 11:17 am

    Hello Ron, thanks for your comment. Because legal practice is state specific and I am not licensed in VA, if you’re a VA resident, you’ll need to seek planning advice there. If you’re a Florida resident, I can say for educational purposes only, that there are many superior ways to do the planning that you’re suggesting (vs. adding your son as a TOD on an operating Agreement). In FL, I would recommend that you either use an LLC and make your son a minority member and start gifting him interest, with the LLC remainder (upon your death) going to a Trust with him as beneficiary. For enhanced asset protection, this could be an TN Asset Protection Trust owned by you that owns 99% of the LLC or it could be another type of trust such as a Florida Medicaid Trust, depending on your goals. This strategy adds asset protection and facilitates your planning goals to transfer the real property to your son. It also could help you with pre-Medicaid planning for yourself and spouse because in order to “except” this property from a Medicaid calculation, an LLC should be used. There are other planning goals to consider such as the potential impact of estate taxes give the “sunset” of the high exemption environment that we’ve been in.

    To schedule a consultation to discuss further, you can connect with Gene at info@gibbslawfl.com or call our office at 239-415-7495.

    Best, Steve Gibbs, Esq.