Giving Away the Farmhouse (or any house): Asset Protection Deserves Careful Thought

One of the most frequent questions I get from clients is how they can stop the government from taking their home, if they ever move to a nursing home. They ask about gifting it to their children, or placing it in a trust, to make sure that the house isn’t lost to enormous medical expenses. I understand their concern. Your home is one of your most important assets, both financially and emotionally. The idea of losing it to a cold bureaucracy would be off-putting to anyone.

But your home’s importance is all the more reason not to make rash decisions about its fate, especially out of fear or a misunderstanding of the law. That’s why every discussion I have with clients about protecting their home starts with a basic explanation of Wisconsin’s Medicaid program, which is the program that provides assistance with medical expenses and, sometimes, seeks reimbursement for the given aid.

Medicaid is a form of government assistance that is generally need-based, meaning that you do not qualify for help if you have too many assets of your own. At least, this is true when seeking assistance with nursing-home or other institutional care expenses. Applicants need to spend down their assets to a very low level before financial assistance will begin. However, some assets are ignored when determining an applicant’s eligibility and one of those is usually the applicant’s home. This is true if the applicant’s spouse or dependent continues to live in the home, or if the applicant expresses the intent to return to the home. In short, there’s no risk of losing your home as long as you or your spouse or dependent wants or needs it.

That’s not to say that there’s no longer-term risk, however. The state keeps careful track of the assistance it provides, has a very long memory, and, at some point, expects to be reimbursed. This is generally accomplished by filing a claim against the recipient’s estate, which often, then, forces the estate to sell the home to pay the claim. Again, though, this assumes that the spouse and dependents have ended their own use of the home. So, while the home won’t be “taken” by the government, there is risk that it won’t pass to children or other heirs as you wish.

There are ways to protect your home and other assets from the state’s claim from reimbursement, or even from being considered if you ever apply for Medicaid benefits. None of those should be approached lightly, though. Certain types of gifts or transfers can actually result in your being ineligible for benefits, which is risky unless you have other assets sufficient to meet your needs. Other methods might effectively protect your assets without jeopardizing eligibility, but also deny you full use and enjoyment of what you’ve spent a lifetime acquiring. That’s not to say that asset protection is a bad idea – just one that you should consider carefully and with full knowledge of the consequences.

In fact, asset protection of any sort and for any reason is something of a balancing act: protecting those assets vs. being free to use and control them as you wish; preserving assets for your children to inherit vs. enjoying or using those assets during your lifetime; the immediate cost of protection vs. future savings, etc. When I meet with clients about these decisions, we typically do a thorough review of their entire financial picture, looking at investments, real estate holdings, income, debts, immediate and anticipated expenses, as well as motivation for protecting their assets, and their goals and priorities in life. Only then can the client make a truly informed decision about whether and how to protect assets against future risk, which is important because a truly informed decision is the best decision you can make.

Lance A. McNaughton practices estate planning, probate, business, and real estate law in both Lafayette and Green Counties in Wisconsin. He can be reached by e-mail at mcnaughton@swwilaw.com.