51 RI Bar J., No. 4, Pg. 11 (January, 2003). Preserving and Planning for the Principal Residence.

• Author: LILLIAN M. JACQUARD, ESQ.

Rhode Island Bar Journal

Volume 51.

51 RI Bar J., No. 4, Pg. 11 (January, 2003).

Preserving and Planning for the Principal Residence

Preserving and Planning for the Principal ResidenceLILLIAN M. JACQUARD, ESQ.Lillian M. Jaquard, Esq., is a senior associate with the law firm of Visconti & Boren, Ltd. Her practice includes estate planning, wills and trusts, probate law, elder law and Medicaid planning.As we age many individuals become increasing concerned about protecting their principal residence. For many families the home is the largest and most valuable asset that they own. A common misconception is that putting a child's name on the house will protect it. And it is a common practice to add one or more children as joint owners. However, the principal residence has preferred tax characteristics and other issues with respect to transfers that make planning for the best result anything but simple.

WHY DOES THE HOME NEED PROTECTION?

As we grow older the chances of becoming incapacitated grow rapidly. In our society the costs of care can and do leave many elderly people impoverished. A particular concern for families is the extraordinary costs of nursing homes.

In Rhode Island the average monthly cost of a nursing home is $5,485. DHS Regulation 0384.20. At this rate most families go broke very quickly. Once an individual has spent all of his or her resources Medicaid will pay the bill. In Rhode Island Medicaid is administered by the Department of Human Resources and individuals must comply with the state regulations in order to qualify. The state regulations in turn must comply with federal law.

Under both state and federal law an individual will not be compelled to sell the home in order to qualify for Medicaid. To the contrary, in most circumstances the home is an exempt asset under Medicaid law. An exempt asset (also called "non-countable asset") is one that you are allowed to keep and still qualify for Medicaid. DHS Regulation 0354.35.

The problem arises when an individual has received Medicaid and dies. When that happens the state is required to place a lien against the estate of the deceased Medicaid recipient. Thus, if an individual has received Medicaid and dies with the home in his or her name, the home will be part of the probate estate and will be subject to the state's lien for recovery of the benefits paid. In Rhode Island the lien only reaches an individual's probate estate and it does not attach if there is a surviving spouse. R.I. Gen. Laws 40-8-15.

PLANNING FACTORS

The statement of the problem above highlights the unique set of circumstances under which a lien for recovery of Medicaid assistance arises. These circumstances have also created a major focus for elder law attorneys: to protect the principal residence from an estate recovery lien. This can be accomplished by positioning the home outside of the individual's probate estate and thus outside of the reach of the state's recovery. In planning with individuals and families it is essential to look at the impact of a transfer in light of several significant factors.

1. Estate and Gift Tax. Any transfer of an interest that results in a gift in excess of $11,000 to one individual donee will be a taxable gift under federal law and must be reported on a federal gift tax return. I.R.C. Section 2503. There are inherent disadvantages to lifetime gifts. When an individual makes a gift the donee of the gift takes the donor's basis. I.R.C. Section 1015. For example, a parent paid $10,000 for her home...