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Beneficiary (transfer-on-death) deeds & Medicaid eligibility

On Behalf of | May 2, 2018 | Medicaid & Medicare |

Since 2004, Colorado has allowed families to use beneficiary deeds to transfer real property (a home in Denver or a family cabin in the mountains) outside of probate. We must again stress that this strategy cannot replace a comprehensive estate plan. Get legal advice as well, because simple mistakes can invalidate a transfer – e.g. failing to record a beneficiary deed before a death.

In a past blog, we provided examples of how these deeds work. We also briefly addressed one potential issue related to Medicaid planning. In this post, we want to go into more detail about how these deeds can affect Medicaid eligibility.

What is a countable resource?

In Colorado, the cost of long-term care continues to increase. Medicare does not generally cover these once a patient reaches a plateau. Medicaid only provides coverage for nursing home care if assets and income are below a thresholds.

The asset limit for nonexempt items is $2,000 ($3,000 for couples) in 2018. This means the definition of countable resource matters. Certain assets are exempt and cannot be pursued to repay nursing care costs (generally home equity in a principal residence).

When transfers occur is also important. Medicaid recovery statutes contain a look back period of five years from the application for benefits.

The lifetime gift tax exclusion allows tax-free gifting up to $14,000 ($28,000 for a couple) in a year. These lifetime gifts are often a long-term strategy to transfer an inheritance while still able to see loved ones enjoy it. Yet any gifts within five years of applying for Medicaid benefits will be closely scrutinized. 

Now how do beneficiary deeds fit into this overall picture?

Beneficiary deeds

The transfer-on-death deed is not a completed gift. Colorado statute specifically addresses the situation where a grantor of a beneficiary deed needs long-term nursing care.

While we don’t usually quote statutes, this one is important. It specifically mentions: “No person who is an applicant for or recipient of medical assistance … shall be entitled to such medical assistance if the person has in effect a beneficiary deed.” Colo. Rev. Stat. § 15-15-403. This statute effectively excludes anyone who has a beneficiary deed from Medicaid eligibility.

It also says, “the execution of a beneficiary deed … shall cause the property to be considered a countable resource.” The interplay between this statute and federal exemptions for home equity would need to be reviewed on a case-by-case basis. It is sometimes possible to revoke a deed and undo some of the damage.

This emphasizes the importance of early estate planning. Do not wait until nursing care becomes a requirement. Speak with an experienced estate planning attorney for individualized answers.