The time has come. Every elderly person dreads the day they have to step out of their home to make their way to the nursing home. This transition can be complicated, emotional, and downright scary. You or your loved one may be worried about Medicaid planning, nursing home costs, home upkeep, health issues, and even putting the house up for sale. However, before you put that real estate sign up, you must understand some of the Medicaid rules regarding homeownership.
The requirements for Medicaid qualification are a fine tightrope you must walk to qualify for the program. Or perhaps you or your loved one have already qualified with the house considered an exempt asset. You must realize that the sale of your home could throw off the balance of the Medicaid eligibility. In this article, we will detail some of the income and asset limitations Medicaid specifies, what could happen if you sell your home or not, and how to prevent Medicaid liens being placed on your property.
If you or your loved one needs a nursing home or long-term care, there is a program that helps individuals with general health coverage or coverage for nursing homes or assisted living services. This is called Institutional Medicaid. You can enroll in Medicaid to help pay for long-term care. This program is meant for those elderly people with low income and few assets.
All states have these programs, but the Medicaid rules and eligibility requirements are different in each state. The services that can be financed by Institutional Medicaid include room and board, nursing care, personal care, and therapy. Medicaid may finance 100% of your costs in a Medicaid-approved facility. Getting this financial aid isn’t easy though. You can only qualify for this program if you meet the nursing home eligibility requirements and have income and assets below the limits specified for your state.
Anything other than these assets listed above will be counted toward the countable asset limit. There are also different rules and limits for married couples when one is applying for Medicaid benefits. It is important to realize when you are applying for Medicaid that all of your assets will go toward the financing of your care. If you receive a large sum of money, you will be disqualified from Medicaid coverage until that money has been spent.
So the good news is that your house doesn’t count toward your asset limit in most cases. If a spouse or dependent child is living in the home while you are in the nursing home, the home is considered exempt no matter what. If not, there are a few fundamental Medicaid qualifications for your primary residence to be exempt.
If you don’t fall under the above specifications, your home may count as an asset. If the home is determined to be a countable asset, Medicaid may use it to repay what they have spent to cover care for you, once you no longer need care or become deceased. This involves filing a lien for the property and could mean they will sell your home to pay off the lien in the future.
The process of evaluating a candidate is rigorous. Besides meeting the specified asset and income requirements, it is also necessary for Medicaid to look back through five years of your financial statements. In some states, the look-back period may be less than five years. The program is very meticulous in ensuring the aid they give is needed. If at any point the applicant has transferred an asset for less than its fair market value five years previous to the Medicaid application date, it will disqualify their application and there will be a penalty period before you can apply again. This means you cannot shelter assets in the form of gifts or selling them for $1 to a family member. If the look-back uncovers any assets you’ve attempted to shelter, Medicaid will go after them to aid in the payment of your care.
When deciding whether or not to sell the home, you must factor in any expenses or upkeep difficulties it may cause you or your family members. If you or a family member is spending a lot of time and money just to take care of an empty home, you might consider selling it. You have to determine the long-term costs it will produce and factor that into your decision. However, if the home is occupied, it might be a better idea to keep it. Let’s explore whether to sell or not to sell.
People usually choose to sell if no other family member needs to live in the home. This might be a good option for a single Medicaid recipient. Choosing to sell the home versus keeping it as an exempt asset means thinking in terms of how much of the recovery funds Medicaid would be looking to have paid back. If the care costs for the person are expensive, the amount of recovery could quickly diminish the home value. If this is a possibility, it might be a good idea to apply for Medicaid right before or after selling the home. If the Medicaid expenses won’t be significant, then maybe keeping the home would be a palatable option for the family.
While you own your home, it doesn’t count toward your income. But if you sell it, this will change your income and asset levels significantly. You will be taking an exempt asset and turning it into a countable asset, which likely exceeds the $2,000 limit. As a result, you will automatically be disqualified from the Medicaid payment system and will be in the private pay system. Once you have spent the money from the sale of your home, you can reapply for Medicaid assistance. This is called “spending down” your assets.
If someone is over the income and asset limits, they will typically pay out-of-pocket for their long-term care until their assets have been diminished enough to qualify for Medicaid. This is called “spending down” their assets. You can spend down your assets by paying off debt, buying an annuity, taking a vacation, buying a funeral trust, or paying for long-term care.
You could also consider the half a loaf gifting strategy in which you transfer about 50% of the funds to another party. This could prevent the anticipated recovery against the house, which could quickly eat up its value. Additionally, selling the home while the homeowner is alive enables the capital gains exclusion by reducing or eliminating the taxes owed through capital gains.
If you do decide to sell your home and then spend down the funds, consider consulting an attorney to enlist some guidance in the best way to do so in your particular case.
It is important to be aware that the rate Medicaid pays for your care is going to be lower than the private pay rate. This means it is cheaper, in the long run, to stay within the Medicaid system by not selling home.
If you decide not to sell your home, you may ask that your heirs simply wait till you are deceased to sell the house. Or they may choose to keep the house. Either way, you must realize that your heirs will most likely have to repay Medicaid due to liens being put on the home. Repayment can be done from the money made from the sale of the home or repaid from the heirs themselves if they keep the home. If the property is sold, the profits will go to Medicaid first as repayment for your care. Then what is left over will go to your heirs.
They say nothing in life is free, right? It turns out that even though your house may be considered exempt from your countable assets, it is possible that Medicaid can still put a lien on your home when you are in their system. A lien is a claimed right to the property until the debt owed has been paid. Having a lien on your property will guarantee that the government is repaid the money they provided for your long-term care costs. This is implemented through the Medicaid Estate Recovery Program (MERP) whose goal is to recover funds Medicaid has spent on its beneficiaries. MERP recovers the sum of these payments at the time of death through the deceased’s estate.
This means that upon your death, the debt incurred is due and payable. First, your appointed heirs will be confronted with the bill. If they are unable to pay the money (they will be given the chance to get a loan to repay), Medicaid Estate Recovery may sell the home. The sale proceeds will first go toward the debt owed to the government as well as any expenses, and then the rest is given to your heirs.
Depending on what state you live in, there are a few options that may protect this from happening. Planning for this situation is the best thing you can do. Talk to an elder care attorney about the best options for your situation. You can look into options like:
Thinking ahead is important to protect your savings and assets. Estate planning long-term will help you continue to support your family members but also still allow you to qualify for Medicaid. Think about possibly gifting things long before you require nursing home care. Doing so five years ahead of time may save you from lots of penalties incurred through Medicaid.
If you gift things ahead of time, and in increments, you will not only avoid Medicaid fees but also avoid gift taxes, as well as the potential for estate taxes. Just make sure to find out what is the limit amount in your state for gifts not to be taxed in a given year.
Entrusting an elder law attorney or a Medicaid planner for advice is a good idea in any decision you may choose. They can help you become aware of possible actions that could save you and your loved ones money in the long run. Whether you decide to sell or not to sell, we here at CareAsOne hope this transition goes as smoothly as possible.