Many Americans look forward to the day they send in their last mortgage payment and own their home free and clear. They can spend their senior years secure in the knowledge that as long as they pay their property taxes, their most valuable asset is safe. When they die, they can pass their home on to their children, grandchildren, or other heirs. It’s a heartwarming picture, right out of a Thomas Kinkaid painting. But wait. What is that dark shape lurking outside, casting a shadow across the ivy-framed door?

It’s a Medicaid reimbursement official, lien in hand, ready to seize your family’s greatest asset. Is this some artist’s dark fantasy? Not at all. Most states have laws that allow them to seek reimbursement for Medicaid payments. Your home is exempt from recovery, but only as long as you live in it. The day you enter a nursing home on a permanent basis, that protection flies out your warmly glowing window.

If you are married, your house will remain exempt as long as your spouse lives in it. Should your spouse die, the state can place a lien on your home. With the lien in place, you can neither sell the house nor refinance it without reimbursing the state for your Medicaid payments. The state can enforce its lien upon your death. If what you owe equals the equity in your house, your heirs will receive nothing from the sale of your home. What can you do? Here are a couple of suggestions:

1. Get long term care insurance. It will pay for in-home care, a stay in a nursing home, or a stay in an assisted living facility, so you never have to resort to using Medicaid. Chances are good that you will use such insurance. According to the American Association of Homes and Services for the Aging, 69% of Americans who live to be 65 will require long term care at some point.

2. Give your home to your children or other loved ones. The state cannot place a lien on the home if it is not yours. Be careful, though. The gift must be made more than 60 months before you enter a long term care facility. In addition, this action may have tax consequences for the person receiving the gift.

3. Transfer the home using a special power of appointment. With this strategy, you transfer the ownership of your home to someone else, keeping it away from the state. You can have the transfer occur during your lifetime or upon your death. You can reserve the right to change your mind and redirect the home to someone else.

Designing a Medicaid strategy is complicated. There are many options, so be sure to consult with an attorney who specializes in elder law. Or get long term care insurance and paint Medicaid out of the picture entirely.

Author: Bradley Steffens