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

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, regardless of its value. Otherwise, the exemption is capped at $585,000 in 2020.

But note that the value of the homestead will not be excluded as a countable asset if the home is held in a revocable living trust. A home that is placed in a revocable living trust loses its exemption as a homestead and becomes a countable resource.

Therefore, if an applicant’s homestead is held in a revocable living trust, it should be transferred out of the trust and into the applicant’s name. If the homestead is removed 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.

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