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New Illinois Medicaid rules, implementing the federal Deficit Reduction Act of 2005 (DRA), threaten transfers of homes where a Life Estate has been retained.  Also, the rules will be applied retroactively against transfers of homes and other assets made since February 8, 2006.  The use of a care contract or other strategy may salvage ill-advised prior transfers.

Life Care Planning, Estate Protection, Disability,
VA & Medicaid Assistance Lawyers

New Illinois Medicaid Rules Threaten Life Estates

It took Illinois nearly five years but we are finally going to be in compliance with a Federal law that became effective February 8, 2006.  The Federal law is called the Deficit Reduction Act of 2005 (DRA), and it radically changes the rules of Medicaid qualification for the payment of nursing home expenses.  For those who have already conveyed their home to their children or other heirs, but retained a Life Estate, the DRA threatens their ill-advised effort to protect their home.


The new Illinois rules implementing the DRA were published in the Illinois Register on August 13, 2010.  Thus they could become effective as early as November 13, 2010 or as late as sometime in the spring of 2011.  More on the effective date of the new Illinois DRA rules may be available in next month's column.


The new Illinois rules, 281 pages long, contain many provisions that will affect almost every senior in southern Illinois who will need nursing home or other long-term care at any time in the future.  In other words, every senior who has a home, savings, investments, or other assets will be profoundly affected should they need, at any time in the future, financial assistance to help them to remain at home, or for care in an assisted/supportive living facility or nursing home.


Many readers of this column are concerned with the new "look-back" period and whether the action they have already taken will be sufficient to prevent the loss of their home and savings when the new rules come into effect. So that is where I will begin my analysis of the new rules.


Section 120.388 of the new rules, titled "Property transfers on or after February 8, 2006", makes all gifts or transfers to any person or organization, even a church or charity, made at any time on or after February 8, 2006 subject to the new rules. Specifically, subsection (g) provides:


"g) Look Back Period. The provisions of this Section apply to any asset transfers (occurring on or after February 8, 2006) made 60 months before the date on which the person is both an institutionalized person (as defined in subsection (c) of this Section) and has applied for medical assistance."


In other words, the new rules are going to be applied retroactively to February 8, 2006, as of the effective date of the new rules, and will look backward to see if there have been any transfers during the prior 5 years. The backward looking 5 year period begins when the person is in a nursing home and has filed a Medicaid application.


Let's look at the facts of a real case. In January 2006, Mary (not her real name) heard about the new Federal law. So she went to the attorney her deceased husband had previously used to have the attorney draw up a deed transferring title of her home to her three children. She told the attorney that she did not want to lose her home paying for nursing home care. The attorney recommended that she retain a Life Estate (i.e., a right to live in the home for the rest of her life). Today, although Mary transferred title to her home more than five years ago, she continues to have an interest in her home i.e., her Life Estate.  Under the new rules a Life Estate has a value based on Mary's life expectancy (as determined under current actuarial tables published by the Office of the Chief Actuary of the Social Security Administration).  Accordingly, the government will place a lien on the Life Estate should Mary need financial assistance in paying for care at home, in an assisted/supportive living facility, or in a nursing home.


In order to avoid the possibility of a lien being placed on her home, Mary asked whether she can simply transfer the Life Estate to her three children.  Unfortunately, I had to tell Mary that the transfer for less than "Fair Market Value" would create a "penalty" equal to the cost of care.  In other words, if the value of her Life Estate is $65,000 and the cost of her nursing home care will be $4,000 per month, there would be a penalty of 16 months and 7.5 days. [Unfortunately, Mary's "penalty period" will not begin until she is in a nursing home (or receiving a nursing home level of care), has "spent-down" her assets to $2,000, otherwise qualifies for Medicaid, and has filed an application for Medicaid to help pay for her nursing home care. "Penalty periods" and how to calculate them will be covered in a future edition of the Southern Business Journal.]


In Mary's case there were several courses of action that could be taken to protect Mary and the value of her Life Estate from both a lien and a "penalty period".  For example, her children could: (1) "purchase" the Life Estate for "Fair Market Value" as specified in the new rules; or (2) provide care to Mary that would allow her to continue to stay at home until such time as she might need a nursing home level of care. [There are other options that would be available if the facts of Mary's case were different.] Both of these options have hazards lurking in the new rules that will create "gotchas" for many who might be inclined to do their planning on their own or with an attorney who lacks sufficient Medicaid experience.


In Mary's case, she and her children agreed to pursue the second option. However, this is going to require substantial work to avoid a loss of the home. For example, there will need to be a formal written contract and the care-giving children will need to keep very detailed records of their care-giving time and expenses. In addition, Mary or her children will need to obtain a detailed statement from her physician that "explains why the person needed personal or home health services . . . and specifies the services appropriate to the person's needs."  There are a number of other cumbersome and onerous details that are either required by the new rules or ought to be undertaken if Mary is to be in the best position to avoid the loss of her home.


As the foregoing case demonstrates, while the new DRA rules make it more difficult to protect a home and other assets, it is not impossible.  Even where a person already is receiving care at home or is in a nursing home, there is no need to roll-over and allow the government to confiscate a home or life-time savings.  But it requires the elder or someone on his or her behalf to not delay and to consult with a very experienced and knowledgeable elder law attorney to help them avoid the land mines buried in the new rules - just waiting for families to make a miscalculation traversing the Federal DRA mine field created by the new Illinois rules.


Richard Habiger is the author of the Illinois edition of How to Protect Your Family's Assets from Devastating Nursing Home Costs: Medicaid Secrets, and is an elder law attorney who focuses on asset protection, Medicaid and VA benefits. You may contact him at 618-549-4529 or




This article is scheduled to be published in the September 2010 edition of the Southern Business Journal.