The Evolution of Medicaid Law

I strive to push the evolution of Medicaid asset preservation techniques. One example of this is the following recent exchange on the Maryland Bar Association Elder Law Section’s list serv, an online discussion forum for Maryland lawyers who practice elder law.

William Gatesman wrote:

One Medicaid asset preservation strategy is to gift assets and wait five years before applying for Medicaid, however, one cannot guarantee donor will not need nursing home care during those five years.

Does anyone see a problem with transferring real property in fee simple, but reserving a right of reversion if within 5 years such transfer would result in Medicaid ineligibility? [Such deed would have to be artfully drafted.]

The effect of such deed would be to make the property non-marketable by the grantees for the five year period. After five years, the reversionary interest will have expired. And if nursing home care is needed within the five year period, the property can be recovered and other planning may be done.

This type of deed would eliminate the risk of Medicaid ineligibility during the five years and not being able to get the property back if necessary.

Another respected Elder Law lawyer responded:

A typically interesting Gatesman plan — but …

My concern would be with illiquidity. What happens if the need for long term care occurs at 55 months? The entire property becomes available even though only five or six months of care have to be paid for. I assume the grantor or agent for the grantor can decide whether to invoke [the right to reacquire the property], or may choose not to do so and pay for care from other resources through to month 61.

OK, but what if long term care is triggered at 45 months — and agent and grantor would both like to borrow against the property rather than liquidate it to pay through to month 60. Would the typical nervous Nelly lender be willing to lend?

Still, on the right facts, sounds pretty interesting.

To which William Gatesman replied:

I suppose the grantees can buy out the reversionary interest using the proceeds from the loan, and that way the lender has only the grantees as holders, no longer encumbered by the reversion, so the loan should not be a problem. And that way the original grantor has the funds to pay for care during the remaining period in the five year term. Better still, he obtained the funds in a transfer for value.

I hadn’t considered this response when I originally floated the idea, which is why I appreciate your observations and the give and take of this forum.

In this way, the Gatesman Law Office strives to promote the evolution of Medicaid asset preservation practice.