Qualified Transfers of Property to Qualify for Medicaid

A person is allowed to own a home even while they are getting New York nursing home Medicaid, as long as they have a subjective intent to return to the home. However, Medicaid will place a lien on the home and will try to recover its costs when the home is sold or inherited.

A way to avoid lien recovery is to transfer or bequeath a home to a qualified relative. This way, there is no lien and no waiting period to get Medicaid. The following are the family members who qualify for this kind of property transfer:

1. the spouse
2. a child who is under 21 or disabled
3. a brother or sister with an equity interest in the home who resided in the home one year prior to institutionalization
4. a son or a daughter who resided in the home for two years and provided care so as to keep the Medicaid recipient from becoming institutionalized

The rules are often ambiguous about the meaning of “residing in the home” and “providing care.” Relatives that you might think don’t qualify may in fact qualify, and the other way around. This is why it is important to engage a New York Medicaid attorney before attempting this transfer, to make sure that the process is followed correctly and that the Medicaid application will not be denied and there is no lien on the property.

How the Home Is Treated for Medicaid Purposes

The primary residence occupies a unique position in Medicaid law. It is an exempt asset – it is not counted toward the resource limit during the applicant's lifetime, as long as the applicant intends to return home (or has a spouse, minor child, or disabled child living there). But it is not actually protected from recovery. After the applicant's death, the state has the right to recover the cost of Medicaid services from the estate, and the home is often the only significant asset left.

The recovery happens through a lien on the property or through a direct claim against the estate. New York is a probate-only recovery state, meaning that recovery is limited to assets that pass through probate. If the home passes outside of probate – through a transfer-on-death mechanism, joint ownership, a properly-structured trust, or one of the qualified transfers described below – the recovery is generally avoided. This is why so much Medicaid planning focuses on how the home is titled.

The Five Qualified Transfers in More Detail

Federal Medicaid law allows certain transfers of the home without triggering a transfer penalty. These are listed in 42 U.S.C. § 1396p and incorporated into New York Medicaid policy. Each has specific requirements.

The Spouse Exemption

A transfer of the home to a spouse is always permitted under Medicaid rules. No penalty applies. The community spouse can hold the home in her own name and continue to live there. If the institutionalized spouse dies first, the home passes to the community spouse without exposure to recovery. If the community spouse dies first, recovery may eventually attach when the institutionalized spouse later dies, depending on how the home is held after the community spouse's death.

The spouse exemption is the easiest transfer to use. We typically pair it with a careful review of the community spouse's own estate plan to avoid the home becoming exposed later.

The Minor or Disabled Child Exemption

A transfer to a child who is under 21, blind, or permanently and totally disabled is also exempt from any transfer penalty. The disability standard is the same as for Social Security – the child must be unable to engage in substantial gainful activity due to a medically-determinable impairment expected to last at least twelve months or result in death. Disability determinations from the Social Security Administration are generally accepted as proof.

This exemption is most often used by parents of adult disabled children. The home can be transferred outright or, more commonly, to a supplemental needs trust for the child's benefit. The supplemental needs trust route preserves the child's eligibility for SSI, Medicaid, and other benefits while allowing the trust to hold the home for the child's housing needs.

The Sibling Exemption

A transfer to a sibling who has an equity interest in the home and who lived in the home for at least one year before the applicant was institutionalized is exempt from any transfer penalty. "Equity interest" is interpreted as a property interest of some kind – an ownership share, a joint tenancy, or sometimes a long-standing tenancy with contributions to upkeep. The one-year residency must immediately precede the institutionalization.

This exemption is more limited than the others because most siblings do not hold formal equity interests in a sibling's home. When the facts fit, however, it can produce a clean result. We have used the exemption in cases where two siblings purchased a home together decades earlier and one became unable to live independently.

The Caregiver Child Exemption

This is the most powerful of the qualified transfers and the most frequently used in our practice. A transfer of the home to an adult child who lived in the home with the parent for at least two years immediately before institutionalization and provided care that allowed the parent to remain at home instead of going into a nursing home is exempt from any transfer penalty.

The two-year residency must be continuous and immediately precede institutionalization. The care must be substantial – the child must have provided care that delayed institutionalization. Documentation matters: medical records showing the parent's condition, statements from the parent's physicians attesting to the level of care provided at home, statements from neighbors and family members confirming the child's caregiving, and contemporaneous records of the care given.

The caregiver child exemption is scrutinized carefully by Medicaid examiners. Casual arrangements, where the child simply lived in the home without providing meaningful care, do not qualify. We help families document the caregiving relationship properly so the exemption holds up.

The "Intent to Return Home" Issue

While the applicant is alive and on Medicaid, the home remains an exempt asset only if the applicant has a subjective intent to return home. The intent does not have to be realistic in light of the applicant's medical condition – it is a subjective standard. A statement from the applicant or, if the applicant is incapacitated, from a family member acting under power of attorney, is generally sufficient.

The intent must be documented in the Medicaid application. If the applicant or the representative declares that the applicant will never return home, the home is no longer exempt and is treated as a countable resource that has to be liquidated for the applicant's care. This is rarely the right answer; most families maintain the intent-to-return-home position throughout the Medicaid period.

Transfers Outside the Qualified Exemptions

Transfers of the home to people who do not fit one of the qualified categories – an adult child who was not a caregiver, a grandchild, a friend – trigger the standard transfer penalty rules. The value of the home is divided by the regional rate to produce a penalty period. The applicant is ineligible for Medicaid during that period and must private-pay for care.

For families that can afford to wait, an outright transfer of the home more than five years before applying for Medicaid avoids the look-back issue entirely. The transfer is "outside the look-back" and does not produce a penalty. The risk is loss of control – once the home is transferred, the parent is at the mercy of the child to remain in the property. Many families use an irrevocable Medicaid asset protection trust instead, which keeps the home outside the parent's countable resources after five years while preserving a life estate or right of occupancy for the parent.

Mistakes to Avoid

The most common mistakes in this area include:

• Transferring the home to an adult child shortly before Medicaid is needed, without realizing that the transfer creates a penalty period.
• Failing to document caregiver-child residency and care, then losing the exemption when Medicaid asks for proof.
• Transferring the home but not removing it from the applicant's name on local tax records, creating confusion at recovery time.
• Using a quitclaim deed with insufficient information, leading to recording problems later.
• Failing to file gift tax returns for transfers that exceed the annual exclusion, even where no tax is due, creating documentation gaps later.

Talk to a Medicaid Asset Protection Attorney

Transferring the home is one of the most important decisions in a Medicaid plan. The wrong move can produce a transfer penalty that costs months of private-pay care. The right move, executed with proper documentation, can preserve the home for the family with no recovery exposure. Contact the Law Offices of Albert Goodwin at 212-233-1233 or by email at [email protected].