How Joint Ownership Can Destroy Medicaid Planning
Families often add children or other relatives as joint owners on bank accounts, homes, or investment assets to “make things easier.” The intention is usually good, like avoiding probate, simplifying bill payments, or protecting assets from nursing home costs.
Unfortunately, this well-meaning step can have devastating consequences for Medicaid eligibility, tax planning, and asset protection. In New York, where long-term care costs can exceed $180,000 per year, a simple joint ownership decision can derail an entire Medicaid plan.
Why Families Add Joint Owners
Adding a child or relative as a joint owner is one of the most common estate planning shortcuts. Parents often believe that joint ownership:
Avoids probate by allowing the surviving joint owner to automatically inherit the asset
Simplifies financial management if the parent becomes incapacitated
Protects assets from being “taken” by Medicaid or nursing homes
While these goals are understandable, joint ownership rarely achieves them safely. In fact, it often creates new legal and financial risks that families never anticipate.
Example: The New York Family Bank Account
Consider a widowed mother in Westchester who adds her daughter as a joint owner on a $100,000 savings account “just in case.” The daughter now legally owns half of that account. If the daughter later faces a lawsuit, divorce, or bankruptcy, her creditors could claim her share. Worse, if the mother applies for Medicaid within five years, the transfer of half the account to her daughter may be treated as a gift, triggering a penalty period of ineligibility.
Medicaid Transfer Implications
Under New York Medicaid rules, any transfer of assets for less than fair market value within five years of applying for nursing home coverage can result in a penalty period, a delay in eligibility during which the applicant must privately pay for care. When a parent adds a child as a joint owner, Medicaid presumes that half the asset was gifted.
For example, if a parent adds a child to a $400,000 brokerage account, Medicaid may treat $200,000 as a gift. At an average regional rate of $14,000 per month for nursing home care, that could mean more than 14 months of ineligibility.
Even if the child never withdraws a dime, the mere act of adding their name can trigger this penalty. Families often discover this only after a Medicaid application is denied—when it’s too late to fix.
The Home Ownership Trap
Joint ownership of real estate can be even more problematic. Many New Yorkers add a child to the deed of their home to “protect it” from Medicaid. However, this transfer can:
Trigger a Medicaid penalty if done within five years of applying
Create capital gains tax exposure for the child when the home is sold
Expose the home to the child’s creditors or divorce proceedings
If the child later divorces, their spouse could claim part of the home’s value. If the child dies first, their share may pass to their own heirs, not back to the parent. What began as a simple “avoid probate” strategy can quickly unravel into a legal and financial nightmare.
Creditor and Divorce Risks
Joint ownership means shared ownership and shared risk. Once another person’s name is on an asset, that asset becomes vulnerable to their personal financial issues. In New York, creditors can pursue a joint owner’s share of any jointly held property.
Example: The Manhattan Condo
A father adds his son as a joint owner on his Manhattan condo to “make things easier.” A few years later, the son’s business fails, and creditors obtain a judgment. The father’s condo is now partially exposed to collection efforts. Even if the father pays all expenses, the son’s ownership interest is legally valid and subject to creditor claims.
Similarly, if the joint owner divorces, their spouse may claim part of the jointly owned asset as marital property. These risks apply equally to bank accounts, investment portfolios, and real estate.
Better Alternatives to Joint Ownership
Fortunately, there are safer and more effective ways to achieve the same goals without jeopardizing Medicaid eligibility or exposing assets to risk.
1. Durable Power of Attorney
A properly drafted New York Durable Power of Attorney allows a trusted person to manage finances without transferring ownership. This avoids Medicaid penalties and creditor exposure while ensuring continuity if the principal becomes incapacitated.
2. Revocable Living Trust
A revocable living trust can help avoid probate while maintaining full control during life. Assets in the trust remain under the grantor’s ownership for Medicaid purposes but pass smoothly to beneficiaries upon death.
3. Irrevocable Medicaid Asset Protection Trust (MAPT)
For long-term care planning, a Medicaid Asset Protection Trust is often the best solution. By transferring assets into an irrevocable trust, the grantor starts the five-year lookback period while retaining the right to live in the home and receive income. After five years, those assets are fully protected from Medicaid recovery.
4. Transfer-on-Death (TOD) or Payable-on-Death (POD) Designations
For bank and investment accounts, TOD or POD designations can pass assets directly to beneficiaries without probate without giving them current ownership or exposing the funds to their liabilities.
Before adding anyone as a joint owner, it’s essential to understand the long-term consequences. What seems like a simple convenience can have serious legal, tax, and Medicaid implications. Reviewing these key points can help families in New York make informed decisions and avoid costly mistakes.
Adding joint owners can trigger Medicaid penalties, tax issues, and creditor risks.
Medicaid treats joint ownership as a partial gift, potentially delaying eligibility.
Joint ownership exposes assets to the joint owner’s creditors and divorce claims.
Safer alternatives include powers of attorney, trusts, and beneficiary designations.
Protecting assets and preserving Medicaid eligibility requires careful planning. Hence, families in New York should always consult an experienced elder law attorney before adding anyone as a joint owner.
A small planning mistake today can cost hundreds of thousands of dollars in lost Medicaid benefits later.
Schedule a consultation with the Moskowitz Legal Group’s expert elder law attorneys to review existing accounts, deeds, and ownership structures before making changes that could jeopardize long-term care coverage.
