Medicaid Trusts and Home Equity Loans

READER QUESTION:

I have an irrevocable trust for my house to protect it from Medicaid.  I now want to do some renovations to the house, but the bank won’t allow me to get a home equity loan against the house.  What is the best way that I could borrow against this irrevocable trust?

MY RESPONSE:

There is no problem transferring a house subject to a home equity loan into a trust, but this is a different situation. I truly sympathize with your question, but no bank is going to give a home equity loan against a house that is already in an irrevocable Medicaid trust. I have seen lenders allow reverse mortgages and traditional mortgages, but not home equity loans. I assume you and the trust have no other money to make these renovations. Also, the extent of the renovations and who would benefit from the renovations does come into play with these types of trusts. You, not the trust, are responsible for the house maintenance. Conversely, the trust is prohibited from spending money on your responsibilities or from benefiting you in any way.

This is an area where a wrong move can create serious Medicaid consequences. Please exercise extreme caution and consult with us before taking any action.

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