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.
To 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 $2000.
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 homesteads 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.
Next 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.
Paul Premack is a Certified Elder Law Attorney practicing estate planning and probate law in San Antonio.
Original Publication: San Antonio Express News, April 15, 2011