This column first appeared in the San Antonio Express News and other Hearst Newspapers on September 25, 2018.
Dear Mr. Premack: I own mineral rights to Texas property but do not own the property itself. I’m 80 years old and may need to go in a Texas nursing home, eventually need to apply for Medicaid. How can I give my mineral rights to my two sisters now (before going to a nursing home) so there’s no probate and no Medicaid estate recovery? Would a Quitclaim Deed, Lady Bird Deed, Irrevocable Living Trust, or as last resort, Irrevocable Transfer on Death Deed work? – JD
In order to qualify for nursing home Medicaid, any Texas resident must be 1) 65 or older, or blind or disabled, 2) demonstrate medical necessity, 3) have proper citizenship or immigration status, 4) have income below Medicaid’s cut-off, and 5) have countable assets below Medicaid’s cut-off.
You say you own mineral rights, but do not have any surface rights to the same land. The mineral rights are an asset with value, and if they are producing then they also provide an income stream to you. Medicaid has a special rule for ownership of mineral rights: if they are valued at $6000 or less, and they produce income of at least 6% per year, they minerals are not countable resources. If the mineral rights do not meet those criteria, they are countable resources.
Globally, if countable resources exceed $2,000 in value, and if monthly income exceeds $2,250 per month, no one qualifies for Medicaid. Even if the mineral rights are not countable, so an applicant can own them and still qualify for Medicaid, when the applicant dies the mineral rights will be subject to probate and to a possible MERP (Medicaid Estate Recovery Program) claim.
You want to give these mineral rights to your sisters to avoid probate and to avoid MERP. However, if you transfer ownership in any way – with a Deed, a Quitclaim Deed, a Lady Bird Deed, a Trust, or a Transfer on Death Deed – and you do not receive full value for the minerals (that is, you gift them away) then Medicaid will impose a disqualification.
Texas law says the length of the disqualification is calculated by taking the value of the minerals and dividing by 172.65. If, for instance, the minerals are worth $125,000 then the resulting disqualification will last for 724 days. Those days do not start to lapse until you otherwise qualify for Medicaid. This law is meant to discourage people from gifting away assets, and to have them pay for their own care.
There are a few exceptions to the transfer penalty. If you are married, any transfer to your spouse is free of penalty. Transfer to your disabled child has no penalty. All other transfers incur a penalty, unless the transfer was made more than five years prior to the date you apply for Medicaid. Unless the law changes, if you gift the mineral rights to your sisters, stay healthy for at least five years, and then eventually apply for Medicaid, the transfer of the mineral rights need not be mentioned.
There may be other options depending on your specific circumstances. You should meet with a qualified Certified Elder Law Attorney to have your entire situation reviewed.
Paul Premack is a Certified Elder Law Attorney with offices in San Antonio and Seattle, handling Wills and Trusts, Probate, and Business Entity issues. View past legal columns or submit free questions on legal issues via www.TexasEstateandProbate.com or www.Premack.com.