Category Archives: Real Estate Liens

Does the MassHealth Program Have a Home Equity Limitation?

by: Brian E. Barreira, Esq.

In general, a MassHealth applicant can keep ownership of the person’s home (although it will be subject to a lifetime lien, allowing MassHealth to get reimbursed on a sale during lifetime, and the person’s probate estate will be subject to an estate recovery claim, making MassHealth reimbursement very close to first in line after the probate estate’s sale of the home). Under 2006 changes in federal Medicaid law, some applicants can keep a home of any value, including the MassHealth applicant’s spouse. There is, however, a limit on how much home equity a MassHealth applicant can retain.  When this law took effect, the limit in Massachusetts was $750,000.00, but due to being indexed for inflation, the 2015 limit is now $828,000.00.

If the MassHealth applicant’s home equity exceeds the annual limitation, the equity limit can be dealt with through bank mortgages and personal loans, which must meet stringent MassHealth requirements.

How Does MassHealth Treat a Sale of a Life Estate in 2013?

by: Brian E. Barreira, Esq.

When a person who has a life estate wants to sell the real estate, the life tenant is legally entitled to a share of the proceeds.  The amount of the proceeds that the life tenant is supposed to receive is based on his/her life expectancy and interest rates at the time of sale.

To calculate the value of the life estate, you must first determine what the applicable interest rate is.  The interest rate in the month of the sale can be found at http://www.tigertables.com/7520.htm.  Once you have this figure, you then go to IRS Book Aleph at http://www.unclefed.com/IRS-Forms/2001/p1457.pdf and look in Table S for the page displaying tables with that interest rate.  Looking up the life tenant’s age on that page will get you the breakdown between the life tenant’s percentage interest in the proceeds and the other parties, who on that page are referred to as the “Remainder.”  For further explanation, including an example, see MassHealth Eligibility Operations Memo 07-18.

If the interest rates required to be used are below 2.2, different IRS tables need to be looked at, so in that situation go to http://www.irs.gov/irb/2011-38_IRB/ar06.html.

The life tenant’s share of the proceeds can be eligible for the $250,000 capital gains exclusion under Internal Revenue Code Section 121, but often the persons receiving the remainder do not live there and their proceeds are subject to capital gains taxation without the ability to use that exclusion.  Thus, it can often be advisable to wait until the life tenant’s death before selling real estate, so that the real estate will receive a step-up in basis under Internal Revenue Code Section 2036.

Note that the failure of the life tenant to receive the life tenant’s full share of the sale proceeds is considered a disqualifying transfer of assets under federal Medicaid law and MassHealth regulations, and is subject to the 5-year lookback period.

When Is a Lien Placed on a MassHealth Applicant’s Home and What Does the Lien Do?

by: Brian E. Barreira, Esq.

An unmarried person who applies for MassHealth long-term care to help cover nursing home expenses is usually allowed to keep ownership of his/her home.  One main exception would be if there is equity of more than $750,000 in the home.

Federal Medicaid law and MassHealth regulations allow the applicant’s home to be kept if the applicant’s intends to return home.   A lien is often placed on the home by MassHealth so that the agency will learn if the home is being sold during the MassHealth recipient’s lifetime.   If it is sold, MassHealth often will be reimbursed at the real estate closing for whatever amount has been spent on the care of the MassHealth recipient through that date.

A lien is often placed on any ownership interest that the MassHealth applicant has.  Therefore, a lien can be placed on the home if the MassHealth recipient has a partial ownership interest, including joint tenancy or a life estate.  The lien currently has no legal effect unless the home is sold during the MassHealth recipient’s lifetime.  Upon the MassHealth recipient’s death, the lien on the home is removed.  At that point, MassHealth would file an estate recovery claim as a creditor of the deceased MassHealth recipient’s probate estate, and there would be no estate recovery claim under current Massachusetts law unless the home was subject to the probate process.

What Is Estate Recovery by MassHealth?

by: Brian E. Barreira, Esq.

Estate recovery is the process whereby MassHealth gets reimbursed for its expenditures on behalf of a MassHealth recipient.  In effect, MassHealth is a loan if the MassHealth recipient has any assets that are held in a form that can be attacked by MassHealth.  If there is a lien on a MassHealth recipient’s home and it is sold during the MassHealth recipient’s lifetime, MassHealth will assert a claim for reimbursement at the real estate closing.

All of the estate recovery claims occur after the MassHealth recipient’s death, and at present only against the deceased recipient’s probate estate.  (During the first two years of Mitt Romney’s term as Governor of Massachusetts, the Massachusetts legislature gave his administration unbridled power to change the Medicaid laws in Massachusetts and he expanded estate recovery greatly, but once the members of the legislature woke up and learned what they had voted for, they almost unanimously repealed the expanded estate recovery law).  

The federal law continues to give states the option to expand estate recovery laws, so it is possible that estate recovery will be expanded in Massachusetts in the near future.

How Does MassHealth Treat a Sale of a Life Estate?

by: Brian E. Barreira, Esq.

When a person who has a life estate wants to sell the real estate, the life tenant is legally entitled to a share of the proceeds.  The amount of the proceeds that the life tenant is supposed to receive is based on his/her life expectancy and interest rates at the time of sale.

To calculate the value of the life estate, you must first determine what the applicable interest rate is.  The interest rate in the month of the sale can be found at http://www.tigertables.com/7520.htm.  Once you have this figure, you then go to http://www.unclefed.com/IRS-Forms/2001/p1457.pdf and look in Table S for the page displaying tables with that interest rate.  Looking up the life tenant’s age on that page will get you the breakdown between the life tenant’s percentage interest in the proceeds and the other parties, who on that page are referred to as the “Remainder.”  For further explanation, including an example, see MassHealth Eligibility Operations Memo 07-18.

The life tenant’s share of the proceeds can be eligible for the $250,000 capital gains exclusion under Internal Revenue Code Section 121, but often the persons receiving the remainder do not live there and their proceeds are subject to capital gains taxation without the ability to use that exclusion.  Thus, it can often be advisable to wait until the life tenant’s death before selling real estate.

Note that the failure of the life tenant to receive the life tenant’s full share of the proceeds is considered a disqualifying transfer of assets under federal Medicaid law and MassHealth regulations, and is subject to the 5-year lookback period.