If you need Medicaid assistance to help pay for long-term care at a nursing home, do not assume your home is an "exempt resource" even if its value is less than $750,000. Your home could lose its exempt status if you become a long-term resident of a nursing facility. Medicaid has successfully challenged the home exemption, arguing that the homeowner is permanently absent from the home. You should also remember that, upon the death of the owner receiving Medicaid benefits, the local Department of Social Services can attach a lien to the home to recover any benefits paid out.

Protecting your home as an asset is a major concern. The two most common ways of protecting are to transfer the home to other people, typically family members and retain a life estate in the premises, or to transfer the home into an irrevocable asset management trust. There are benefits and disadvantages to both options. However, the new law has changed the decision making process.

Under the old law, the life estate transfer would cause a three-year look-back period and a period of ineligibility for institutional Medicaid, based not on the full value of the home, but rather only on that portion of the home that was being transferred. The life-estate owner would still be considered a partial owner of the home. For example, a 82 year old transferring the remainder interest but retaining a life estate would actually only be transferring 60 percent of the property and while keeping 40 percent. That would mean that on a $400,000 house the actual amount transferred would be $240,000, resulting in a period of ineligibility for institutional care on Long Island of approximately 24 months.

Under the old law, a transfer into an irrevocable trust would trigger a five-year look-back period and cause a period of ineligibility based on the full value of the home, thereby resulting in a period of ineligibility on a $400,000 house of slightly less than 40 months. For an individual of questionable health who might be in danger of needing nursing home care more quickly, the life estate was an appealing choice. The irrevocable trust would typically be for an individual or for a couple who were somewhat younger and healthier and more concerned with precautionary planning. The advantages of the trust are that it would allow a greater degree of control for the grantors, who would be the individuals setting up the trust. Although the grantors could not name themselves as trustees, they could replace the trustee at any time for no reason. They would also have a limited power of appointment to change the beneficiaries of the trust as well as the percentage of distribution to each beneficiary. This would be especially useful, for example, if a child died: Rather than having that child's spouse inherit their share, the grantor could simply change the will to leave that child's share to a different beneficiary. As noted, the drawback of the trust would be the longer look-back period and the longer period of ineligibility based on the full value of the home.

Under the new law, there is a five year look-back period for all transfers. A transfer of a home with a retained life estate no longer causes a three year look-back period, but rather a five year look-back period, the same as the trust. The period of ineligibility no longer starts the month after the transfer is made, but rather only starts during the five year look-back when an individual enters a nursing home and is otherwise eligible for Medicaid. Therefore, the most significant benefit of the life estate, that being a shorter period of ineligibility is minimized.

The life estate still has its advantages. There are certain individuals whom a home can be transferred to without any period of ineligibility whatsoever. As noted in previous articles, a transfer to a spouse, minor or disabled child, a brother or sister who has lived in the home for at least one year and has an equity interest, or an adult child who has lived in the home for at least two years and has presumed to be caring for the owner are exempt transfers. In such cases, it makes more sense to give up the benefits of the trust in exchange for not incurring any period of ineligibility whatsoever. Those situations are ideal for a transfer with a retained life estate. As well, when there are not significant other assets besides the home, then it may make sense to simply transfer the home with a retained life estate. As always, this is a decision that should be discussed with an experienced elder law attorney before any choices are made.