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No, Medicare is not involved but if the institutionalized spouse qualifies for Medicaid, then the state Medicaid recovery program could come after the assets left AFTER the second spouse dies (which could be many months or years later). Thus, they delay recovery until both spouses have passed where the assets are the home, household items, etc. which is almost always the case (especially where the first spouse only qualified because the other spouse was allowed to retain certain cash funds and the home (normally, you must have very little assets -- less than $2,000) and less than $1,000 of income to qualify for Medicaid).
If we put our children's name on the deed for the house, with a clause saying we could live in said house till our passing. Is that legal in NC, I know in NY we could do that and once we both had passed the house belonged to the childdren
You can deed the property to your children and reserve a life estate. However, in qualifying for Medicaid, the state still considers the value of the life estate in determining a person's resources for Medicaid eligibility requirements. The state would also count the value of the remainder interest deeded to your children if you tried to qualify within 5 years of deeding the property to your children and reserving a life estate.
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