San Antonio Express-News
September 7, 2004

MERP and Probate Avoidance

copyright 2004, Paul Premack

MERP is designed to repay the state for money it spent providing nursing care to certain persons over the age of 55. The primary resource owned by most of those persons is their home, so legal opportunities to protect the home are becoming a hot topic.

Don’t jump the gun. Recall that the Medicaid Estate Recovery Program (MERP) is not yet final; the regulations are expected to be approved in November 2004 but that date is not certain. Recall also that MERP will not be putting every Medicaid recipient at risk.

In my August 17 column I listed categories of recipients who should be safe. The last category was, "The State will honor efforts to protect assets through planning that removes them from the probate process. No claims will be made against property held in a revocable trust, that pays to heirs by Right of Survivorship, or that passes through a life estate arrangement." [Update: the state's rules have changed and a revocable trust is no longer a useful tool to avoid MERP. Further, the life estate arrangement must be "enhanced" with special provisions to avoid other entanglements with Medicaid's transfer penalty.]

How does it work? The proposed regulations give the state only one legal method for collecting money under MERP: when the Medicaid recipient dies, a claim can be filed by the state against the testamentary assets owned by that recipient. If the recipient found an alternative way to pass title to the home – one that keeps the home out of probate court – then the state will not have an opportunity to file its claim.

I have written about those planning alternatives in prior columns and in my book, The Senior Texan Legal Guide, 4^th Edition. [Update: the 5th edition of the Guide is now its current iteration.] You can visit www.Premack.com or read my book to get more details about trusts, life estates and survivorship arrangements. You will need an attorney to take advantage of the available planning alternatives.

Dear Mr. Premack: My wife and I are in our late 80’s and we own a large home in Seguin. We plan to leave our home to our two sons. What is the correct procedure for us to use to be sure the home goes to them? We have not made Wills yet! Thank you, Anon.

You have a lot of choices, and you should begin by seeking personal counsel from an experienced estate or elder law attorney in your area. The cost of meeting with an attorney for advice and proper legal documents is tiny compared to the value of your home.

Strongly consider making Wills, which provide a stable foundation for other plans. Wills provide contingency plans in case other techniques fail. For instance, you might decide to sign a life estate deed (in which you retain the use of the home until you both die, when it becomes your sons’ property without probate). But what if both your sons tragically die before you? The contingency plan in your Wills provides your unique answer.

You should avoid an outright gift of the home to your sons. An outright gift would cause you to lose property tax reductions, and would cause your sons to lose capital gain tax advantages. Ask your attorney for help in selecting the solutions that fit your specific needs.