Q: I’m single w/my mortgaged condo w/ $150,000 equity. How to avoid Medicaid Estate Recovery so my heirs can have it?

A: If you are concerned about preserving your condo with $150,000 in equity for your heirs and avoiding Medicaid Estate Recovery, there are some strategies you might consider. However, each has important implications and requirements under Colorado law.

Key Strategies to Consider:

1) Transfer the Property to an Irrevocable Trust: An irrevocable trust might help you avoid Medicaid Estate Recovery. When you transfer your condo into an irrevocable trust, you give up ownership and control over the asset, which may prevent it from being counted in your estate for Medicaid recovery. However, this move must be done carefully, as you lose control of the property, and there may be tax and timing considerations, including the five-year Medicaid look-back period.

2) Transfer the Condo to Your Heirs (Outright Gift): You could consider gifting your condo to your heirs while you are still alive. This may allow the property to be excluded from Medicaid Estate Recovery. However, this also triggers several considerations:

• Medicaid Look-Back Period: Any transfers of assets, including your condo, are subject to a five-year "look-back" period. If you transfer the property within five years before applying for Medicaid, it could result in penalties, making you ineligible for Medicaid for a period of time.

• Capital Gains Tax Implications: By gifting the condo while you are alive, your heirs could lose the benefit of the step-up in basis. This means they may face significant capital gains taxes when they sell the property in the future, based on the property's original purchase price rather than its value at the time of your death.

Consult with an Elder Law Attorney:

Given the complexity of Medicaid rules and the potential for penalties under the five-year look-back period, consulting with an experienced elder law attorney in Colorado is essential. They can help you evaluate your options and develop a plan tailored to your unique situation.

Timing Considerations: The Medicaid Look-Back Period

It's critical to be aware of the five-year look-back period. If you transfer your condo or other assets within five years of applying for Medicaid, Medicaid can impose a penalty period during which you will be ineligible for benefits. For example, if you transfer the condo today and need to apply for Medicaid within five years, the value of the condo would be used to calculate the length of your ineligibility.

Importance of Filing the 107.9 Form with the Title Insurance Company

If you choose to transfer your condo into a trust or via a life estate deed, it’s important to ensure that any changes in ownership are properly recorded with the title insurance company. Filing the 107.9 form helps to mitigate future title disputes and ensures that your intentions are clearly reflected in the title records. Without this, your heirs could face issues when trying to sell or transfer the property after your death.