Tying up legal loose ends is so important. Mary and John had been divorced 15 years ago. They had split their assets, with John keeping his retirement account and Mary keeping the house. John now needs nursing home care. “It shouldn’t be a problem”, I told Mary. “He’ll need to spend down his assets and then qualify for Medicaid.” Then Mary revealed her problem. John never legally transferred title to the home to Mary. The deed still reads “John and Mary, his wife”.
This situation is actually more common than you might think. Mary and John’s divorce wasn’t too complicated because their children were adults and they didn’t have much other than the house and retirement account, which were close to equal in value. Mary hired an attorney to “put the divorce through” and John represented himself. For reasons Mary doesn’t recall, John never signed a deed transferring ownership.
This could be a real problem for both Mary and John. That’s because unless John can prove he legally no longer owns the home it could be countable and part of a required spend down towards long term care. One of two things could happen. If the house is sold then ½ of the proceeds may need to go towards John’s care. If the home is not sold the state could put a lien on the home for Medicaid benefits it pays out on John’s behalf during his lifetime. “But didn’t he give the home to Mary in the divorce?” Well, yes, but he has to prove he received equal value back and he has to actually complete the transfer, which to this point he hasn’t done.
As long as Mary (or John) can produce a written agreement showing the exchange of the house for the retirement account that won’t be a problem. Mary assured me it’s in writing. She just has to dig it up. I told her now would be a good time to do that. The longer she waits the harder it may be to locate and the State won’t take her word for it. They will want the physical evidence.
She then asked me about preparing a deed. “Would we need to back date it 15 years,” she asked. “Absolutely not”, I told her. The signing date should never be backdated. “Won’t Medicaid treat the transfer as occurring now, making it subject to the 5 year look back?” I told Mary that isn’t an issue. As long as she can prove there was an equal exchange it won’t be subject to a Medicaid penalty and the deed signing is a formality anyway. Legally she acquired ownership 15 years ago.
Mary was relieved but she did learn a lesson. Better to take care of those loose ends now and not allow them to remain untied. A lot can go wrong in 15 years and her home is essentially all she has. When she does sell it she’ll need to make the money last. It would be a tragedy if she were to lose any of it.