When it comes to MassHealth planning and estate protection, one mistake can cost a family hundreds of thousands of dollars. Unfortunately, many people don’t realize they’ve made a critical error until it’s too late.
In this case, a simple but costly legal mistake turned a perfectly protected home into a financial liability, leaving the family exposed to $100,000 to $200,000 in potential nursing home costs.
This is why estate planning and Medicaid planning require the right strategy—not just any strategy.
The Original Plan: A Life Estate to Protect the Home
Back in 2008, a couple made a smart move. They worked with an attorney to transfer their home to their children while retaining a life estate.
A life estate deed is a common MassHealth planning tool that allows homeowners to:
- Continue living in the home for the rest of their lives
- Ensure the home passes directly to their children without going through probate
- Avoid MassHealth estate recovery since the home is not considered part of their probate estate
Under MassHealth rules, this was a solid estate planning strategy. Their home was protected.
The Mistake: Bad Legal Advice in 2021
Fast forward to 2021, and the couple met with a new attorney who suggested they transfer the home from themselves and their children into an irrevocable trust.
At first glance, this might sound like a good idea. Irrevocable trusts are commonly used for MassHealth planning because they help remove assets from a person’s countable estate for Medicaid eligibility.
But in this case, the advice was completely wrong—and here’s why.
Why This Was a Costly Mistake
When the couple transferred their home into an irrevocable trust, they still held a life estate in the property. Under MassHealth rules, this counts as a sale.
The problem? The wife didn’t pay anything for her share of the life estate, which means MassHealth considers this a disqualifying transfer.
Unless she either:
- Gets the property transferred back to her or
- Pays the amount MassHealth calculates as the value of the life estate on the date of transfer
… she will be denied MassHealth coverage when she applies for long-term care assistance.
The Fallout: Potentially $200,000 in Nursing Home Costs
Right now, the couple hasn’t applied for MassHealth yet. If the wife passes away before she needs care, this mistake may not become an issue.
But if she does need nursing home care, this misstep could cost them $100,000 to $200,000 out of pocket.
What Should Have Happened Instead?
The original 2008 plan was already working. The home was protected from MassHealth estate recovery under the life estate deed. There was no need to transfer the property into an irrevocable trust—and doing so only created more risk.
This is a prime example of why estate planning and Medicaid planning require careful legal guidance. A well-intentioned but misinformed attorney can sometimes cause more harm than good.
Lessons to Learn from This Estate Planning Horror Story
- Not all legal advice is good advice.
Just because an attorney recommends a strategy doesn’t mean it’s the right move for your situation. Always get a second opinion before making significant changes to your estate plan. - Transferring a life estate into a trust is not always a safe move.
This can trigger MassHealth penalties and disqualification periods, creating huge out-of-pocket costs for nursing home care. - If your plan is already working, don’t change it without fully understanding the consequences.
The couple in this case didn’t need to do anything—their home was already protected.
Need a Review of Your Estate Plan?
Estate planning mistakes like this are avoidable—but only if you work with an attorney who understands MassHealth rules and Medicaid planning strategies.
If you want to make sure your assets are truly protected, I offer estate plan reviews to help you avoid costly mistakes.
Contact my firm today for a consultation and make sure your estate plan actually works for you.
