Can Alabama Nursing Homes Claim Assets Held in Trust?

Deciding to go into or place a loved one in a nursing home is difficult. It is also expensive. Because nursing homes provide more medical services than other housing options, they are more expensive than these alternatives. According to the National Council on Aging, the monthly median cost of nursing home care in the United States is $7,908 for a shared room or $9,035 for a private room. The Alabama cost is slightly lower than the national cost at $7,604 for a shared room and $8,060 for a private room. 

The ultimate cost your family will pay will depend on several factors, including which nursing home you go into, how long you will live there, and whether you require short-term or long-term skilled nursing care. Still, looking at the figures above, it’s easy to see how living in a nursing home, even for a relatively short amount of time, can quickly drain your estate. You might worry about losing the wealth you’ve accumulated over your lifetime to pay for nursing care. 

It may be possible to pay for nursing home care with government programs. However, these programs often have complex rules concerning assets and qualifying for assistance. 

Some families place assets in a trust to try to avoid having them taken by the nursing home, including their primary home. While this can be an effective estate planning strategy, you must use certain types of trusts and make arrangements in a timely manner to avoid losing these assets or being disqualified for financial assistance. An experienced lawyer can review your situation and explain the options available to you and your family. 

Understanding Trusts and Asset Protection

Trusts are an effective estate planning tool because they allow you to transfer assets out of your name and into a separate legal entity. Using trusts can help you avoid probate and sometimes protect assets from creditors or claimants. 

However, there is a significant difference between a revocable trust and an irrevocable trust when it comes to protecting assets from nursing homes and government assistance programs. A revocable living trust does not protect assets from nursing homes because its nature allows the trust maker to control the assets and use them for their benefit. However, an irrevocable trust may be able to shield assets from nursing homes if you structure it properly.

With an irrevocable trust, you transfer assets into the trust and forfeit your right to make changes or access the trust assets for your own benefit. These trusts can generally not be changed, amended, or terminated. Taking the steps to create an irrevocable trust may enable you to remove incidences of ownership and prevent Medicaid from using them against you when determining eligibility. 

Medicaid and Asset Protection Considerations

Medicaid is a joint federal and state program that can help pay for medical care for qualified individuals with limited income and resources, including nursing home care. To qualify for Medicaid, an applicant’s assets must be valued below a certain limit. Certain assets are exempted from this value, such as a primary residence. 

If an applicant is approved for Medicaid, the government pays for their nursing home costs. However, the resident must turn over their Social Security and other income to help pay for the cost of their care. 

Some people who anticipate they will need Medicaid assistance begin giving away property to try to meet eligibility guidelines, but Medicaid looks back at financial transactions in the five years leading up to the Medicaid application and penalizes people who do this. This penalty makes them disqualified from receiving benefits for a certain number of months, based on the value of the property they gave away. Medicaid applicants must be very careful about how they transfer property because even adding someone else’s name on a title or bank account can potentially trigger this penalty. 

Nonetheless, there are ways for applicants to apply for Medicaid while protecting their assets, including placing assets in a trust. However, the type of trust and timing of transfer is critical to avoid these penalties. 

Timing and Medicaid’s Look-Back Period 

Medicaid has a five-year look-back period. Medicaid’s look-back rule requires applicants to disclose all the financial transactions they and the non-Medicaid spouse have made in the five years leading up to the Medicaid application, including sales, transfers, and gifts of assets. The worker assigned to determine their eligibility looks to see if the Medicaid recipient disposed of property for less than fair market value during the Medicaid look-back period. If the worker determines they did, the recipient can be penalized by Medicaid not paying for nursing home care for a certain number of months based on the value of the property or interest given away. 

Medicaid’s look-back period is complex. Exceptions exist that allow the transfer of certain property to certain individuals within the 60 months leading up to the Medicaid application. It is wise to work with knowledgeable elder care attorneys who can guide you through this process so you do not make mistakes that can jeopardize your Medicaid eligibility.  

Alabama Law and Nursing Home Claims 

When a person enters a nursing home, applies for Medicaid, and indicates they intend to return home, the value of their property is not counted against them for Medicaid qualification purposes. However, another issue that Medicaid applicants must be aware of is the Medicaid estate recovery process. 

Alabama law requires the state to seek recovery of the amount it paid for a Medicaid recipient’s nursing home care after the recipient dies, which includes the cost of all long-term care services, drug, and hospital benefits, paid by Medicaid. It also includes Medicare cost-sharing payments for long-term care services.

This recovery process includes selling the recipient’s primary home. It also allows the state to claim other assets upon the recipient’s death, including bank accounts, household goods, cash, and real property. 

Of note, this process only involves property that the Medicaid recipient owns at the time of their death. If the recipient transfers property to an irrevocable trust, they no longer own the property, so trust property is not subject to the estate recovery process.

Strategies to Protect Your Home 

If your primary concern is how to avoid nursing home taking your house, you may have several options available to you, depending on your circumstances. Fortunately, with careful planning, there are effective strategies that allow you to protect your home and other assets while the Medicaid recipient is institutionalized and after their passing. Each strategy has different pros, cons, and risks, so it is important to thoroughly discuss your specific situation with an experienced estate planning attorney. 

Transferring Property 

It may be possible to transfer property, including your home to a recipient to avoid losing it to pay for nursing home costs. Generally, such transfers must be made before Medicaid’s look-back period. However, Medicaid offers some exemptions that allow Medicaid recipients to transfer their primary home to certain individuals without being penalized if the transfer occurs during the Medicaid look-back period, including:

• To your spouse – You can transfer your primary residence to your spouse without violating the lookback period. 
• To your child – Medicaid rules also allow you to transfer your primary residence for less than fair market value to your child who is under age 21 or to your child of any age who is blind or disabled without risk of Medicaid ineligibility. 
• To your child caregiver – A child caregiver or child caretaker exemption can apply if you transfer the property to your child who lived in your home and provided care for you for at least two years before your nursing home admission. 
• To your sibling – Medicaid rules also provide a sibling exemption, which allows you to transfer the property to a sibling who has an equity interest in the home and lived in the home for at least one year immediately before your nursing home admission. 

Transferring your right to real estate can have many legal effects, so it’s important you work with an experienced elder law attorney before taking such action. 

Setting Up an Irrevocable Trust 

Because the Medicaid recipient does not own or have access to the assets in an irrevocable trust, transferring property to one, including your primary home, can help shield these assets from recovery or being counted against you for Medicaid eligibility purposes. However, your transfers must still occur before the five-year lookback period to avoid the Medicaid penalty.

Creating Beneficiary Designations 

Alabama’s estate recovery process is limited to the decedent’s probate estate, so any property outside this process can be protected from Medicaid claims. This allows Medicaid recipients in Alabama to execute Lady Bird deeds, or enhanced life estate deeds, that automatically transfer ownership of their real property at the time of their death to the beneficiary the recipient included on such a deed. 

Transferring Property to Your Spouse

Medicaid has special spousal impoverishment rules that are intended to protect the financial well-being of the spouse who remains in the home after their spouse moves into a nursing home. The institutionalized spouse may be able to transfer various types of property to the community spouse without penalty within Medicaid’s look-back period.

Using Long-Term Care Insurance 

Long-term care insurance helps cover the cost of nursing home care and other types of long-term care. Alabama’s estate recovery rules state that if a Medicaid recipient had a long-term care insurance policy in which assets were disregarded according to the Agency’s State Long-Term Care Insurance Partnership, Medicaid will not seek estate recovery for the amount of disregarded assets or resources.

Applying for an Undue Hardship Waiver 

Even if your home is subject to Medicaid estate recovery, your family may be able to apply for an undue hardship waiver in which they ask the state not to claim the property it has a right to if doing so would impose an undue hardship on them. This narrow exception only applies if the property is a family farm or family business that produces limited income and is the sole income-producing asset of an heir to the estate. 

How to Select a Trust to Protect Your Home 

Several different types of trusts may be able to protect your home and other property from Medicaid, including:

• Medicaid Asset Protection Trusts – These irrevocable trusts protect your assets from being counted for Medicaid eligibility purposes.
• Special Needs Trusts – This trust instrument allows you to benefit from some of your assets if you are a person with disabilities while still retaining your eligibility for Medicaid.
• Miller Trusts – A Miller trust can prevent all of your income from being counted against you for Medicaid eligibility purposes.

An experienced attorney can meet with you to discuss your particular situation, review your finances, and explain which trust is best designed to protect your home and other assets. 

Contact an Experienced Lawyer for Legal Guidance and Assistance

At Siniard Law, LLC, we are very knowledgeable about how to protect assets from being taken by the nursing home or Medicaid. We can assist you with Medicaid planning. Our legal team can develop an individualized estate plan that is tailored to your unique needs. Contact us today to schedule a confidential consultation.