Attorney At Law: Selling a home in a Medicaid Trust
By Britt Burner, Esq.
Joan, a 70-year-old woman, visits an elder law attorney and says that her biggest concern is making sure that her house is protected should she need nursing home care. She has two children and wants to make sure they are able to inherit the house after her death. However, Joan also points out that both of her children live out of state with no intention of returning. While they are both married, neither has children. J
oan is hoping that grandchildren will come along soon and knows that if they do, there is a good chance she may want to sell the house and relocate to be near her growing family. Joan is looking for a solution that gives protection to her largest asset, her home, while also providing flexibility in case she decides to move.
Protecting one’s home in a Medicaid Asset Protection Trust (MAPT) is a common planning tool and probably the best option for Joan. The MAPT is an irrevocable trust, meaning that it cannot be revoked unless the creator of the trust, Joan, and the beneficiaries agree. Joan’s children can be the trustees ,but Joan can retain the right to remove them from this position, as well as the right to change the ultimate beneficiaries of the trust. During her life, Joan can also keep the exclusive right to occupy the premises and will be responsible for the property’s maintenance, upkeep and taxes, thus not placing any additional burden upon her children.
Fast forward 5 years and Joan gets the grandkids she has been hoping for and her daughter asks her to move closer to help out. Joan loves the idea, but what about her house?
The trustees can sell the house in the name of the MAPT. Joan’s children, as trustees, will be responsible to handle the sale including signing the listing agreement, contract of sale, and closing documents. Just as if Joan had kept the house in her own name, a $250,000 exclusion from capital gains tax will apply.
The proceeds of the sale must be deposited in a bank account in the name of the trust; the trust sold the house therefore the trust gets the proceeds. From there, the trust can purchase a new house to serve as Joan’s primary residence with the same rules as the prior residence. The protection for Medicaid purposes goes back to when Joan initially put her first house into the trust, so no new clock is set since the assets never left the trust.
If Joan decides to move in with her daughter, the assets can be left in cash or invested within the trust. Depending on how the trust is written, Joan can receive the income generated by those assets. However, in no case may Joan have access to principal from trust assets. When speaking with the elder law attorney, Joan should be upfront about the potential for a move so her concerns can be addressed.
It may make sense, if Joan knows what state she is likely to end up in, for an elder law attorney in the second state to review a draft of the trust to make sure maximum protection can be provided whether Joan ends up needing services from Medicaid in that state.
Britt Burner, Esq. is a Partner at Burner Prudenti Law, P.C. focusing her practice areas on Estate Planning and Elder Law. Burner Prudenti Law, P.C. serves clients from New York City to the east end of Long Island with offices located in East Setauket, Westhampton Beach, Manhattan and East Hampton.
