Estate planning for older clients can be complex, especially when considering the implications of Medicaid (known as MassHealth in Massachusetts), nursing home liens, and irrevocable trusts. Attorneys in Massachusetts must stay updated on the evolving regulations and case law surrounding these matters to offer the best protection for their clients’ assets. This article explores some critical elements of Medicaid regulations, estate recovery, and irrevocable trusts, focusing on how to protect assets like the family home from MassHealth claims.
Understanding Medicaid and MassHealth Regulations
Medicaid is a joint federal-state program designed to assist with healthcare costs for individuals with limited resources. In Massachusetts, the program is called MassHealth. Attorneys must be familiar with both federal and state regulations to ensure they are crafting estate plans that align with Medicaid asset protection guidelines. The Medicaid program underwent significant changes with the passage of the Deficit Reduction Act (DRA) of 2005, which Massachusetts implemented retroactively in 2007. The DRA introduced stricter rules for Medicaid eligibility, including:- A five-year “look-back” period for transfers to individuals and trusts.
- New rules for when the ineligibility period begins following asset transfers.
- Requirements that annuities owned by Medicaid applicants name the state as a residuary beneficiary.
- Home equity limits for single applicants, currently set at $1,033,000.
MassHealth and Nursing Home Liens
One critical element of Medicaid planning in Massachusetts is protecting the home from potential MassHealth liens. Once an individual begins receiving MassHealth benefits, the Office of Medicaid (OM) may place a lien on their real estate, including their primary residence, to recover costs for nursing home or other medical care. Understanding the rules surrounding these liens is essential for attorneys advising clients on asset protection strategies. MassHealth can place a lien on the home of a single person receiving nursing home care if a doctor certifies that the individual is unlikely to return home. However, this lien is not automatically placed if a spouse or other eligible relatives reside in the home. MassHealth typically refrains from enforcing liens until the recipient’s death, at which point they seek to recover the costs through estate recovery. One way to delay the placement of a MassHealth lien is to ensure that the Medicaid applicant answers “yes” to the question of whether they intend to return home, even if it seems unlikely. This subjective answer, combined with a doctor’s certification, can prevent the placement of a lien during the applicant’s lifetime. However, this strategy only delays the lien; estate recovery rules may still apply after the applicant’s death.Protecting the Home Through Estate Planning
For most clients, their primary residence is the most significant asset they own. Whether planning in advance or during a crisis, protecting the home from estate recovery is a top priority. Massachusetts law provides several methods for shielding a home from MassHealth liens, but each comes with its own set of challenges.Crisis Mode Planning: The Case of Mr. and Mrs. Jones
Consider a hypothetical scenario: Mr. Jones is in a nursing home and receiving MassHealth benefits, while Mrs. Jones, his spouse, lives in their primary residence. In this case, the home is not a countable asset for determining Mr. Jones’s Medicaid eligibility. However, what happens if Mrs. Jones predeceases Mr. Jones? If Mrs. Jones dies first, the house would revert to Mr. Jones as the sole owner, placing it at risk for estate recovery. To avoid this, one solution is to transfer ownership of the house solely to Mrs. Jones while Mr. Jones is alive. Since intra-spousal transfers are permitted under Medicaid rules, this strategy would protect the home from immediate MassHealth claims. After Mr. Jones is approved for Medicaid, Mrs. Jones can then take additional steps to safeguard the home for her heirs.Long-Term Solutions: Irrevocable Trusts and Life Estates
Once Mr. Jones is approved for Medicaid, Mrs. Jones could consider transferring the home into an irrevocable trust or executing a deed with a life estate. Both options involve a five-year look-back period for Medicaid eligibility, so they should only be implemented after Mr. Jones’s Medicaid approval to avoid disqualifying him from benefits. An irrevocable trust is one of the most common tools for protecting assets from MassHealth estate recovery. When structured correctly, assets placed into an irrevocable trust are no longer considered owned by the grantor for Medicaid purposes. However, drafting the trust requires careful attention to detail to avoid pitfalls. Here are three essential rules for irrevocable trusts:- Irrevocability: The trust must be irrevocable, meaning the grantor cannot revoke or amend the trust once it’s created. This protects the assets from being counted for Medicaid eligibility or estate recovery purposes.
- Trustee Selection: Some attorneys believe that the grantor should not serve as the trustee. They reason that the grantor has control over the trust and MassHealth may treat the trust as a countable asset, jeopardizing the grantor’s Medicaid eligibility. In my opinion, this issue has been resolved by the case of Guilfoil v. Secretary of the Executive Office of Health and Human Services, 486 Mass. 788 (2021). In that case, the Supreme Judicial Court held that the trustee of a nominee trust who was also the grantor did not have the power to distribute assets to herself and therefore the assets in the trust were non-countable. For a deeper dive into this important case, check out my summary here.
- No Access to Principal: The grantor cannot have access to the principal of the trust. The irrevocable trust should act like a “lockbox,” holding the assets safely until after the grantor’s death, when the assets can be passed to beneficiaries without being subject to estate recovery.
