Estate Planning

Planning for Special Circumstances

Will Transferring My Homestead to a Revocable Trust Prevent Me From Qualifying For Medicaid?

by Rania Combs

Medicaid is a means-tested benefit that provides health insurance for Americans with limited financial resources and income.

To be eligible for Medicaid coverage, applicants can have no more than $2,000 in countable resources. However, not all assets owned by an individual are countable. There are certain assets that Medicaid excludes when it considers an applicant’s eligibility.

One such excluded resource is a client’s principal place of residence. If the applicant’s spouse or adult child with a disability is also living in the home, the value of the home is not countable. This is true regardless of its value. Otherwise, the exemption is capped at $585,000 in 2020.

But note that the value of the homestead will be a countable asset if you have transferred your home to a revocable living trust. A home in a revocable living trust loses its exemption as a homestead and becomes a countable resource.

Therefore, if an applicant has transferred his homestead to a revocable living trust, it should be transferred out of the trust and into the applicant’s name. If the applicant removes the homestead from the trust, the applicant may be able to reestablish the property as a homestead.

One of the reasons many people transfer their home into their revocable trust is to avoid probate; however, it is also possible to avoid probate by executing a Texas Transfer on Death Deed or Lady Bird Deed.

A Transfer on Death Deed or a Lady Bird Deed can also help avoid Medicaid Estate Recovery Program (MERP). Under current rules, Medicaid can only recover assets included in the deceased individual’s probate estate. Transfers that bypass probate are not subject to MERP.

Therefore, the Texas Transfer on Death deed or a Lady Bird Deed, which allows property to pass outside of probate, currently avoids estate recovery.

About Rania

Rania graduated magna cum laude from South Texas College of Law Houston and is the founder of Rania Combs Law, PLLC. She has been licensed to practice law since 1994 and enjoys helping clients in Texas and North Carolina create estate plans that give them peace of mind.

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