| Massachsuetts Asset Protection frequently asked questions answered by Attorney Stephanie Konarski Can I protect assets by transferring them to my kids? What should I do if my spouse is entering or expected to enter a nursing home? Should I transfer my assets into joint ownership? Will a revocable living trust provide asset protection? What is an annuity and how does it work? How can an Irrevocable Trust protect my assets? What is a Homestead Declaration? How am I protected if I am 62 or older, or disabled? Is there anything the Homestead will not protect me from? Can my Homestead be terminated? Will my Homestead Declaration protect my home from being taken if I go into a nursing home? Does the Homestead protection take the place of home insurance?
What is asset protection?Asset protection is a field of law designed to minimize the risk of potential liability and to preserve your assets. Asset protection can shield your assets from the claims of creditors, from having to be spent down in connection with entry into a nursing home, from the imposition of taxes, from legal proceedings being brought against you, and a host of other reasons. Some asset protection techniques include:
Can I protect assets by transferring them to my kids?NO. If your children get into financial trouble, the assets become available to their creditors. If your children go through divorce, the assets may become available to their spouses through divorce settlements. If your children have health problems, the assets may be at risk, as well. In any case, by transferring your assets, you are losing control of them.
What should I do if my spouse is entering or expected to enter a nursing home?If your spouse has become ill and you can foresee that they might need nursing home care in the future, it is critical to reexamine your estate plan. Many spouses have wills which leave everything to their spouse. In addition, they typically have powers of attorney and health care proxies naming their spouse as agent. If your spouse requires nursing home care and obtains Medicaid benefits, it is important to consider the risk that you, as the healthy spouse, could die first. Should this happen, all of your assets would pass to your spouse in the nursing home, placing these assets at risk. An Elder Law attorney can assist you in revising your estate plan so that regardless of what the future brings, you are protected. Specifically, it may make sense for you to change your will, leaving assets to a specially drafted trust designed so that your spouse can benefit from the assets, but Medicaid cannot get them. An Elder Law attorney can also advise you on re-titling your assets so they are protected from your spouse's care costs.
Should I transfer my assets into joint ownership?Joint ownership (with right of survivorship) will cause property to pass outside of probate to the surviving co-owners upon your death. Because the property passes outside of probate, it will be insulated from claims for reimbursement of Medicaid benefits paid on the death of the applicant. Although a lien may be placed on an applicant's home during the applicant's lifetime in the event the home is sold, the claim is limited to the value of the interest owned by the applicant at the time of the sale or transfer. In general, joint ownership is not recommended. It may cause you to lose control of your assets. Joint ownership puts you at risk to creditors of the co-owner, to a co-owner's divorce, bankruptcy, or legal proceedings and the co-owner can access your assets for his or her own purposes. If the jointly owned property is a home, the co-owner is entitled to move in, sell their share, or file an action to partition the property and thereby force a sale. For Medicaid purposes, there is the risk that the joint owner may predecease the applicant. If a home has not been sold or transferred during the applicant's lifetime, and the joint owner dies before the applicant then the property passes by survivorship back to the surviving applicant. This causes the entire property to be subject to a Medicaid lien on the surviving applicant's death.
Will a revocable living trust provide asset protection?A revocable living trust allows you to avoid probate and arranges for the distribution of your assets at the time of your death. However, a creditor can break right through it. Further, a revocable trust will not protect your assets from Medicaid. Assets in revocable trusts are considered "available" under the Medicaid rules. An applicant will not be eligible for Medicaid benefits until the assets are removed from the trust and spent-down. If a home is in a revocable living trust, the home must be transferred back into the applicant's name and will then be subject to a Medicaid lien. However, a properly structured living trust can protect your children from their creditors.
What is an annuity and how does it work?An annuity is a right to receive periodic payments in return for a single premium payment. It is one means of protecting assets exceeding Medicaid's limits. The purchase of an annuity transforms excess assets that would otherwise make the nursing home spouse ineligible for Medicaid into a noncountable stream of income for the community spouse. The annuity must be irrevocable and have a term certain - a guaranteed number of years of payment - that is shorter than the life expectancy of the healthy spouse. In addition, the money paid back by the annuity over the life expectancy of the annuitant must be equal to or greater than the amount initially paid for the annuity. The annuity should not be purchased until the spouse enters a nursing home.
What is a Life Estate?A deed with a reserved life estate allows you to transfer your property to someone upon your death, but during your life you continue to live in the property. You cannot be kicked out by the future interest holder. Even if a creditor has a claim against the future interest holder's interest in the property, the property is not subject to partition and cannot be sold absent the life tenant's consent. A life estate allows you to avoid probate. Because the property passes outside of probate by operation of law, it may not be subject to a Medicaid claim after the death of the applicant. One disadvantage of the life estate is that the life tenant cannot sell, mortgage, refinance or in any way encumber the property without the consent of the future interest holder. If the life tenant wishes to sell the home, he or she is entitled to only a portion of the proceeds. If the house is sold, the capital gains exclusion would only apply to the proportion of gain attributable to the life tenant's interest in the property. Thus, capital gain taxes could be assessed against the future interest holder's share of the property. From a Medicaid perspective, if the house were sold, the percentage of the life tenant's proceeds of the sale would be considered an available asset.
How can an Irrevocable Trust protect my assets?By placing assets into an irrevocable trust, the grantor is giving up complete control over, and access to, the trust assets and, therefore, the trust assets can't be reached by a creditor of the grantor. An irrevocable trust is commonly made for the benefit of the surviving spouse, as well as children and grandchildren. Because it cannot be changed, it is off limits to your surviving spouse's new spouse, the creditors of your spouse and children, and will not be lost to spendthrift, irresponsible offspring or their ex-spouses. The trust can be made discretionary, such as providing that no distributions will be made if the beneficiary is addicted to alcohol or drugs. For Medicaid purposes, assets transferred to a properly drafted irrevocable trust will be protected from a claim. For assets to be protected,, the applicant cannot be trustee and there must be no circumstances under which principal payments can be made to or for the benefit of the MassHealth applicant. The property of these trusts is not considered to belong to the applicant. Once the trust is signed into existence, it cannot be revoked or amended. Thus, once an asset is put into the trust, the applicant cannot demand that the asset be taken out of the trust and be returned to him or her. Also, the trustee cannot have the power to give it back or use any part of the principal for the benefit of the applicant. If a home in an irrevocable trust were sold during the applicant's lifetime, the proceeds of the sale would be held by the trust and would be protected from being treated as a countable asset preventing the need for any spend-down. The home in trust would be insulated against a lien during the applicant's lifetime because the applicant would not have an ownership interest in the home. It would also not be subject to a lien upon the applicant's death, since it is not part of the probate estate.
What is a Homestead Declaration?A Homestead Declaration, once recorded at the appropriate Registry of Deeds, protects your home (within certain limits) up to $500,000 from the unsecured claims of creditors. A Homestead Declaration will protect you or your surviving spouse and dependent children against attachment, levy on execution, or sale to satisfy debts, so long as you occupy or intend to occupy such property as your principal place of residence. Only one spouse can file a Homestead for their family. However, should the parent who declares the Homestead die, the law protects the residence until the youngest unmarried child reaches the age of eighteen (18) and until the surviving spouse dies or remarries.
How am I protected if I am 62 or older, or disabled?If you are 62 years of age or older, regardless of marital status, or a disabled person, regardless of age, your home is protected against attachment, seizure or execution of judgment to the extent of $500,000. For elderly and disabled individuals, the protection up to $500,000 is for each person's ownership interest. That is, both spouses may declare a homestead so long as they are 62 years of age or disabled. The homestead protection applies only to the individual, rather than the family. This means if a husband declares a Homestead, the Homestead protection ends at the death of the husband and does not pass to the wife.
Is there anything the Homestead will not protect me from?The following are exempt from Homestead protection: federal, state and local taxes, assessments, claims and liens; first and second mortgages held by financial institutions and others; any and all debts, encumbrances or contracts existing prior to the filing of the declaration of Homestead; an execution issued from the probate court to enforce its judgment that a spouse pay for the support of a spouse or minor children; where buildings on land not owned by the owner of a Homestead estate are attached, levied upon or sold for the ground rent of the lot whereon they stand.
Can my Homestead be terminated?Your claim of Homestead will be terminated upon the sale or transfer of your home during your lifetime, upon the death of you and the remarriage of your surviving spouse and upon each child reaching the age of majority or by a release of the Homestead estate duly signed, sealed, and acknowledged by you and recorded at the Registry of Deeds, or when the property ceases to be the principal residence.
Will my Homestead Declaration protect my home from being taken if I go into a nursing home?No. Liens imposed by the Massachusetts Department of Medical Assistance, as a result of the payment of Medicaid benefits, are exempt from the Homestead protection. However, there may be other ways that you may be able to protect your home.
Does the Homestead protection take the place of home insurance?No. The Homestead protection is not a substitute for home insurance or any other type of liability insurance. |
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