Elder Law Center

One Essex Street

Saugus, Massachusetts 01906

Telephone 781.233.4444   Fax 781.231.2222

October 4, 2007

PUTTING YOUR HOUSE IN TRUST

 The most popular way for seniors to protect their home from nursing home costs is by placing it in an irrevocable trust. This is especially true since the passage of the Deficit Reduction Act (DRA) on February 8, 2006. The DRA’s sweeping changes in Medicaid law now requires anyone who wants to protect any of their assets to plan ahead, 5 years ahead of time to be exact.

 The benefits of placing your home in an irrevocable trust include the following:

·        Protection from nursing home costs

·        Avoids Probate

·        Provides a “Step Up in Basis”, allowing your heirs to sell tax free after you are gone.

·        Flexibility in determining when and who gets the property after you are gone

·        Freedom to sell your current home and have the trust purchase a new home, without losing it’s protected status

·        Protection from creditors

As you can see, there are a lot of benefits to placing your home in a trust. So why doesn’t everyone do it? Probably the number one reason that someone would choose not to place their home in a trust is that they waited too long and have some type of medical situation that makes them doubt if they could last the 5 years necessary to get by the “look back” period.

 Under the new law, (DRA) the “look back” period means that if you need nursing home care, MassHealth (Medicaid in Massachusetts) will look back at the last 5 years to see if you made any gifts or transfers to a trust. You will then be disqualified for a period of time, dependent on how much you gave away or transferred to a trust. Here’s an example:

Example: Lucy is 75 years old. Four years ago she transferred her home that was worth $400,000 to an irrevocable trust. Now she is in a nursing home and needs MassHealth to help pay for her nursing home care. The Answer: Since the transfer was within 5 years the disqualification period will begin now. This means that Lucy is not eligible for MassHealth and she must somehow reverse the transaction, get the house back, and sell it. Or, her family could privately pay for a year to get past the 5 year lookback and then have her apply for MassHealth, or, Lucy could get a reverse mortgage (yes, you can get a reverse mortgage, even if your home is in a trust) and privately pay long enough to get past the 5 year lookback.  

 Why else would you not need an irrevocable trust? If you have long term care insurance, your home might already protected from nursing home costs. If you have a lot of income and/or a large amount of cash, you might decide to privately pay for care at home or go to a nursing home that only accepts private paying customers. There are also certain exceptions that automatically exempt your home, such as having a disabled child or caregiver child that lives with you, or a sibling that owns a portion of the home.

 The irrevocable trust for the protection of the home is a very popular planning tool. But, before you run out and tell your attorney that you want a trust, analyze your current situation and consider the pro’s and con’s.

 This article gives general information and not specific advice on individual matters. Persons wanting individualized advice on matters discussed should contact an advisor experienced in those matters. To the extent this article provides information on legal matters, it is based on law in effect in Massachusetts on the date of posting (laws in effect in other states are often quite different).

Ronald H. Surabian is a CPA and attorney who works at the Elder Law Center in Saugus, Massachusetts. He also holds Masters in accounting and a Masters in tax law. He currently serves on the board of directors of the Massachusetts Chapter of the National Academy of Elder Law Attorneys. If you have any questions please call me at the Elder Law Center, One Essex Street, Saugus, MA 01906 (781)233-4444. To view this or any prior article, please visit our web site at www.elderlawcenter.org

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