The nursing home often gets blamed when people lose assets due to long term care expenses. It is unfortunate that care in a nursing home is so expensive, and that people end up going broke in a nursing home, before they get help to pay for the care. The nursing home provides care and needs to be compensated either by their client or by Medicaid.
How Medicaid can help
Medicaid will pay for long term care; but they have strict asset and income limitations and complicated rules. Bear in mind that Medicaid is not paying the nursing home directly, but merely lending the money to pay the nursing home. Unfortunately, before Medicaid even steps in to help, it essentially requires that a person goes broke first. Our law firm understands the Medicaid rules and helps people take steps to protect assets from long term care expenses.
Becoming Eligible for Medicaid
When somebody goes to a nursing home, the state runs a calculation based on the person’s income and net worth. Single people can keep only $8000, a car, a funeral arrangement and their house. Unfortunately, it does not mean the house won’t eventually be lost due to the estate recovery program.
To sell the house….
Since $8000 is the limit, and Medicaid requires all monthly income be paid to the nursing home, money for home upkeep will not be sufficient. In this case, the kids may decide to sell using a Power of Attorney if they have one. However, selling the house means dad receives cash from the proceeds of the sale, putting him over the $8000 limit. Being over-resourced results in dad losing Medicaid benefits, until he spends the proceeds from his house sale down to $8000. In effect, he has still lost his house and the proceeds to long term care costs.
….or not to sell the house
Most families want to avoid losing the home, so they hang on to it. They know that the house will be left to them as per dad’s will. They will pay the bills and maintain the house hoping to receive it when dad dies, when they sell it and the proceeds are divided. However, when dad passes away, the house is in the estate and subject to the Estate Recovery Program, and proceeds don’t go to the kids as planned.
What is the Estate Recovery program?
In Pennsylvania the Estate Recovery Program requires that the assets of the Medicaid recipient are sold when they die. The proceeds from the sale of assets are paid back for every dollar spent on long term care. If dad doesn’t lose the house while he is still alive, the proceeds are recovered from the sale of the house once dad passes away. The resources the family spent on keeping the home, are gone too.
To give the house or not give the house?
In the case of a married couple, the healthy spouse (mom) can keep the home if the other spouse (dad) is in a nursing home. Transferring the house from dad to mom when possible, often avoids the estate recovery claim. However, if mom dies before dad, and she leaves everything to her husband according to her will, this reverts to the single person scenario. This means they can lose the house. Being aware of the risks, mom and dad might assume that putting the house in the kids’ name will keep it safe. But be careful because giving the house to the kids, three costly mistakes are likely:
- Firstly, the seniors just gave up control putting their house in their kid’s name. The kid could go through a divorce or die before the parents. If he leaves everything to his spouse in his will, you could lose the house to your former daughter-in-law. What would happen if she remarries? Where would you live?
- Secondly, Medicaid has a 5 year look back period. If you put the house into the kid’s name, and less than 5 years later you need long term care, you won’t be eligible for Medicaid.
- The third mistake is a huge tax blunder. If the house is the primary residence of the seniors, it is often exempt from Capital Gains Tax. However, if the house is put in the kids’ name and it is not their primary residence, they must pay capital gains tax on the gain when they sell the house.
If you have somebody in or going into a nursing home, please reach out to us. Call us at 724 546 4227 to schedule a free consultation, and we will ascertain how we can help you.
If you have time, with no immediate need to go to the nursing home, you can take steps to protect assets in advance. Putting the house and assets into a trust, protects them from Medicaid Rules. We talk a lot about these trusts in our workshops, so join us as you plan to protect your future. Register for a workshop on sechlerlawfirm.com/workshops.