Medicaid - Should We Just Go Ahead and Sell the House?

"My mother, who is a widow, has no savings but owns a home, valued at $200,000, and just entered a nursing household. The expense is $6,000 a month! The only way she can afford that is if we sell her residence...If we do not sell her residence, the state will take it anyway when she dies, appropriate? So what distinction does it make?"

My client was in a panic, and whilst promoting the residence seemed like the only remedy, I recommended the following alternative: Do not sell the property, but rather apply for Medicaid promptly. If mom's only asset is her property, she will most certainly qualify (assuming her revenue isn't unusually high).

"But if the state will take her property immediately after her death, why not just sell it now?" my client persisted.

First of all, the state doesn't "take" a person's household, either through their lifetime or following their death. What happens, as a general rule, is that following the Medicaid recipient's death, the state will make a claim against the estate of the deceased recipient, for the total amount of Medicaid positive aspects paid out for their care, through their lifetime. (Note that a couple of states still do not seek reimbursement following a recipient's death, even though federal law requires it.)

Therefore, if mom only lives for one particular year just after being in the nursing dwelling, and the Medicaid "bill" for her remain in the nursing dwelling for that one particular year is, say, $50,000, then the household has a option: preserve the house and come up with the $50,000 themselves, or sell the house, pay the state the $50,000, and then divide up the balance of the sale proceeds amongst the loved ones members, as provided by mom's will.

What if mom lives for a number of years in the nursing dwelling, so that the bill from Medicaid exceeds the worth of the house? In that case, the state is stuck---the most it can get is the net sales proceeds from the sale of the home. It cannot go after the young children for the balance.

One more cause not to sell the house: If mom applies for Medicaid now, and qualifies, the nursing household will be paid the state "Medicaid reimbursement" rate, which is consistently a wonderful bit lower than the private spend rate. The actual amount the nursing residence have to accept varies from nursing house to nursing home, so there is no general guideline. However, assume the Medicaid rate is only $four,500/month, instead of $6,000/month. If mom dies just after one particular year, the household may perhaps indeed have to sell the residence to raise the capital to reimburse the state, but it will only owe 12 x $four,500 ($54,000) vs. what it would have paid had it sold the home and paid the nursing dwelling privately, i.e., 12 x $6,000 ($72,000). Therefore, the family saved $18,000 by NOT selling the house! And that savings would boost for every further month mom lives.

So the longer mom lives in the nursing house, the far more the family will conserve by doing this. Still, there is an upper limit: If mom lives lengthy adequate, so that the Medicaid bill exceeds the full worth of the home, then in effect it will have made no distinction no matter if the house was sold and she paid privately, or kept the residence and got on Medicaid. In either case the home will have to be sold to spend for her care, leaving nothing at all for the family members. So her age, health, and life expectancy enter into the equation.

As you can see, some cautious believed ought to be offered to this decision. What I did not go over is the possibility of promoting the property, gifting a portion of the proceeds, buying an annuity with some of the proceeds, adding a child's name to the deed, transferring a remainder interest in the home to a child, transferring the house (or a remainder interest in the house) to an irrevocable trust, the interaction of the spousal protection guidelines if mom is married, the limitation on the quantity of equity mom can safeguard in her property, and so on., etc. To discover these possibilities, consult an knowledgeable elder law attorney in your locale. To get a running get started, yet, see my book, "How to Guard Your Family's Assets from Devastating Nursing Residence Charges: Medicaid Secrets," which discusses all of these concerns and alot more.