Under Florida law, “homestead” is defined as a half acre in a municipality and 60 acres in an unincorporated area.
For Medicaid purposes the primary residence is known as the "homestead" and is an exempt asset (does not effect eligibility for Medicaid) so long as it is occupied by the applicant, the applicant's spouse or the applicant's minor, disabled or blind child. If you are single, up to $552,000.00 of equity in your homestead is exempt. The rest of the homestead equity is a countable asset.
But what if you move out of your homestead and into a nursing home?
Will your house remain exempt?
Under Florida law, your house can remain your homestead, even if you do not reside in it and if you have the intention of returning to it. Thus, a nursing home resident should always state that they intend to return to their home no matter what their condition. Many misinformed people have lost their homesteads because people have told them that they need to sell them. This is not true! In fact, under the Florida Probate Code, a homestead can be passed to a spouse and descendants free from creditor’s claims.
Caution: You cannot rent the house while you are in the nursing home. If you do, it becomes clear that you do not intend to return to it.
An Option Worth Considering
The most commonly utilized, and perhaps best Medicaid planning option relevant to the primary residence is the transfer of the residence to a Medicaid Qualifying Trust, also known as an Irrevocable Income Only Trust. Title to the premises is deeded to the trustees of the trust and the transferors are generally granted a life estate in the premises. No invasion of the trust principal can be made to or for the benefit of the transferors/grantors of the Trust. However, the Trustees, if the Grantors of the trust wish to provide them with the authority, could invade the principal of the trust for the benefit of the Grantor's children or other third parties, not including themselves.
The transfer to the Irrevocable Income Only Trust will create a five (5) year look back period as a result of the provisions of the DRA. (Deficit Reduction Act of 2005 ("DRA") which became effective on February 8, 2006 must be carefully reviewed. The DRA created a five year look back period for all non-exempt transfers, as well as an onerous period of ineligibility for Medicaid if an application for nursing home Medicaid is made before the five (5) year look back period has expired.)
Thus, it is important to wait until the look back period has expired before applying for Medicaid to avoid the potentially lengthy ineligibility period imposed by Medicaid as a result of the DRA.
The transfer to the irrevocable trust has many estate and gift tax advantages which make it preferable to an outright transfer either with or without a life estate being reserved by transferor. For example, the transfer to the trust can be structured so as to avoid any gift taxes and to allow the beneficiaries of the trust to receive a step up in cost basis upon the demise of the transferor as well as allowing the continued availability of the principal residence exclusion for capital gains tax purposes.