Dear Mr. Premack: My widowed father had his
resources (home, 166 acre ranch) placed into a revocable living trust.
This trust was enacted about nine years ago. Does this trust prevent the
family from having to go through probate court? If so, can MERP still file
an estate recovery claim against his estate if he needs to be placed
permanently in a nursing home? – HR, McAllen, TX
You are asking
about big legal issues: trusts, probate, qualifying for Medicaid and
Medicaid’s estate recovery program. These all interact in a very specific
and somewhat surprising manner.
First, the trust and probate.
Your father established a revocable living trust and placed title to his
home and to his 166 acre ranch into the trust. When he dies, the home and
the ranch will not have to go through probate. They will be distributed to
whomever he specified as beneficiaries under the trust. This avoidance of
probate is one of the main reasons people opt to use living trusts.
Second, qualifying for Medicaid and avoiding MERP (the Medicaid Estate
Recovery Program). Understand that a person’s assets are not threatened by
MERP unless that person has become a beneficiary of the Medicaid program.
So before we discuss whether MERP is a threat, we have to discuss whether
your father can qualify for Medicaid in the first place.
qualify, he must: 1) be 65+ or disabled, 2) a US Citizen or resident legal
alien and 3) be certified as needing intermediate or skilled level care.
If the day comes that he needs nursing home care, those three factors will
be easy to fulfill. The next two factors are more difficult. He must: 4)
have income below $2,022/month and 5) have countable resources below
You did not give your father’s income, but you did state
that he owns a home and 166 acre ranch. If the home and ranch are all in
the same place, on one contiguous tract of land, they are both treated as
homestead and may not count against his $2000 resource limit. But if the
home and ranch are in separate places then a) the house may not count
against his limit because it is homestead, but b) the ranch will count
against his limit because it is not homestead. If he is over the resource
limit, he cannot qualify for Medicaid and MERP will never become an issue.
Also, note that I said the homestead “may not” count against his
limit. This is because, when a homestead has been put into a living trust,
Medicaid refuses to treat the homestead as exempt from the resource limit.
Their reasoning revolves around an obscure federal law, but their motive
is to expose the homestead to MERP. (If they did allow the homestead to be
exempt while in a trust, he could qualify for Medicaid and he could avoid
the MERP claim – so they found a way to disallow this strategy).
Your father cannot qualify for Medicaid so long as his home and the ranch
are owned by the living trust. If he removes them from the trust, he loses
the ability to avoid probate when he dies, but he may gain the ability to
qualify for Medicaid. But remember, the ranch either must be part of his
homestead or must be valued below the $2000 resource limit.
you might ask “Can he manipulate his assets to qualify for Medicaid, and
if yes, how can he avoid the MERP claim?” Congressional and State policies
are making it more and more difficult to legally manipulate assets, and a
lot more information about your father and his finances is necessary to
even begin forming a legal strategy. You and he could personally consult
with a CELA (certified elder law attorney) in your local area. To find a
CELA, visit the website of the National Academy of Elder Law Attorneys at
www.NAELA.org. Use the “Find an Elder
or Special Needs Law Attorney” button, and search in your zip code or
nearby major cities.