This is an important question for many clients of Elder Law attorneys. Why? Because the general principle for institutional Medicaid is that when you are eligible for Medicaid you live in a skilled nursing facility, you have no assets left (except for the exempt ones), and your income is used for pay the nursing home (Medicaid makes up the difference). Most families plan to keep the home, but if are single, keeping a home you don’t live in can be costly.
So, if you cannot afford to keep the home, can you sell it?
The answer is … yes, but it will create major issues.
And if you don’t sell it, you have to keep it in good shape. That takes expenses!
So, how do I pay the expenses?
Great point … how are you supposed to pay for a car registration, or home taxes or upkeep when all your money has to go to Medicaid or the community in which you are resident?
Short answer is … you can’t. And, many families then end up selling mom’s home to stop the expenses.
But, that causes a new issue … those proceeds will make mom ineligible for a time period … usually until the proceeds are spent at the community she lives in. And then, she sometimes has to re-apply for Medicaid! Ouch!
Isn’t there a better way?
There are two distinct issues at play here – protecting the home for the family, or maximizing eligibility for the applicant.
Oh, and don’t forget about Asset Recovery – that is the process Medicaid uses to find assets in estates that can be used to pay their expenses for care. It is federal law, and NC, like most states, does file claims when appropriate. That is a topic for another day…
Gifting is often a bad idea, but there are exceptions
Remember that you can’t “give” assets away. NC Medicaid laws have a sanction (or, penalty period) for transfer of any assets with compensation at less than fair market value (FMV). For example, selling a home for $1 to someone, or giving a car to a child. Gifting includes moving a home into an irrevocable planning trust too, so don’t do anything with a home until you consult an attorney.
However, there are some exceptions, including gifting the home (it must be the principal residence) owned by the Medicaid applicant and in which a “caretaker child” resided for the past two years or longer. There are some others too, and we can go over those, but this is the most common one I find in my practice. If you gift the house to yourself under the caretaker child exception, that gets you the entire home.
Another common exception that works is that assets can be given to the spouse of an applicant. So, Mom could transfer all titles to all assets to Dad prior to application, and those transfers would not be penalized. Of course, if Dad needs Medicaid eventually, those assets have to be discussed at that point!
Irrevocable Planning Trusts can help
For families who can plan five years in advance of need, irrevocable trusts can be a great help. Funding a trust is a gift, so it creates a penalty if you need Medicaid before five years, but, even then, there are strategies for protecting some assets. Trusts are a huge topic .. call us at 919-883-2800 if you want to know more.
If you don’t have one of those caretaker exceptions, and you are single, you didn’t form a Trust, and you have an exempt home looming, what can you do?
Deeds work in some cases
An interesting approach is to use a deed to transfer just a small percentage of the home to another person. This works for residences as well as land or vacation homes. In NC, we can transfer unequal amounts, such as 1% of ownership. So, if you were going to add your name to a deed, we use a small percentage so that the transfer sanction is very small (on a $100,000 home, a 1% penalty is just $1,000, or about 3 days wait for eligibility). Recently, we have started to use a two-part strategy. We use a 1% deed given to one or more people to protect the non-exempt asset from being counted, and then, we use a lady-bird life estate deed given to the same people for the remaining 99%. The first protects the non-exempt asset now, and the second protects the exempt home or non-exempt assets after the applicant’s death.
Can I sell after approval?
What about selling the home after a single applicant is qualified for Medicaid?
It can be a big problem.
Selling it (whether before you transfer to a new owner or not) it is a problem because the proceeds belong to the applicant and will probably stop Medicaid until the proceeds are spent.
If there is no caretaker child, if the applicant is single, and the home is not in an irrevocable trust already, your options for selling it without impacting Medicaid are limited. Essentially, selling the home always creates a new asset that has to be dealt with, usually by spend-down.
We have some alternatives for saving about half the home value, but the use of the deeds is to protect the home for the family, not to open it for sale. Bottom line, selling the home after Medicaid approval is not helpful, but if the home creates expenses (such as taxes, utilities, upkeep) and no one is living there, you obviously will need to sell it. Then, we use a strategy of protection of some of the proceeds using a trust or annuity and “gifting”. It isn’t as good as planning five years in advance, but none of us has a crystal ball, so knowing when to plan is hard. We alsways suggest sooner rather than later!
The question is, what are your goals?
- Keeping the home for the family? (then use the 1% deeds)
- Or, preserving as much cash as possible? (then sell the home and use the annuity+gifting strategies because the 1% deeds are intended to keep the home in the family)
Call us today to get help understanding your options and getting your planning started!