The benefits of transferring your house to a Medicaid Qualifying Trust

For most Long Islanders, their home is their most valuable asset.  In the event that a homeowner needs nursing home care, he or she may be able to qualify for Medicaid to cover the cost.  However, upon the Medicaid recipient’s death, the local Department of Social Services (“DSS”) must attempt to recover from the estate the amount of benefits paid out on that person’s behalf.  This can quickly deplete some or all of the equity in the home, leaving substantially less, if anything at all, to pass down to children and heirs.

For many of our clients, transferring their home into an irrevocable trust, referred to as a “Medicaid Qualifying Trust” (“MQT”), is the best option for protecting their home from a Medicaid estate recovery.

Benefits of the MQT

MQTs provide flexibility and other benefits such as:

  • Assets placed within the MQT will be deemed fully insulated from loss to Medicaid in the event of a nursing home placement after five years have passed;
  • Upon the passing of the person(s) who created the MQT, the assets in the Trust will pass to the named beneficiaries pursuant to the Trust’s terms;
  • The creator(s) of the MQT will be entitled to use and occupancy of their home even after it is titled in the name of the Trust, and will continue to enjoy all property tax exemptions for which they qualified before the transfer; and
  • Beneficiaries of the trust can enjoy significant savings on capital gains tax due to what is known as a “step-up in cost basis” that results from the creator’s right to use and occupancy of the property during the creator’s lifetime.

As with any transfer, a transfer of the home into a Trust will be considered a gift for Medicaid purposes if it occurs less than five years before entering a nursing home.  For this reason, it is important that individuals plan ahead.

Advantages of the MQT over Transferring the Asset with Retention of a Life Estate

The MQT tends to be advantageous over other strategies for protecting the home.  For instance, some homeowners might choose to transfer their home to their children while reserving a life estate for themselves.  While this estate planning tool has some of the same benefits as the MQT, such as insulating the asset from Medicaid after five years, as well as the step-up in cost basis enjoyed by the children if the property is sold after the homeowner’s death, this method falls short for several reasons:

  • If the home is sold while the homeowner is in a nursing home, then a portion of the proceeds (based upon the value of the life estate interest) would be considered an available resource for Medicaid eligibility purposes;
  • No capital gains benefit will be enjoyed if the property is sold during the life tenant’s lifetime;
  • The transfer with a retained life estate is sometimes considered a taxable gift, depending in part upon the value of the property; and
  • The asset is not protected from the claims of children’s creditors, and could also be subject to equitable distribution in a child’s divorce, making the transfer with retained life estate a riskier endeavor.

Contact our office today to learn more about our proven strategies for protecting your valuable assets from loss to Medicaid.