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MAKING CENTS OUT OF THE NEWS
Blog #02
(January 12th, 2012)
When Mom Needs a Nursing Home
By Tom McAllister, CFP®
Most of my readers, I’m well aware, have substantial means. Most, I’m also aware, have either Long Term Care insurance or have determined their assets are sufficient to self- insure their long term care risks. This blog is intended as information, not necessarily for my readers, but for their family members who may need to know how to handle long term care needs for a parent, aunt or uncle, or child.
Let’s talk about Medicaid. In many situations, the solution lies in spending down whatever assets the person has, then filing for state-run Medicaid benefits to continue the necessary care. Whenever anyone moves to a nursing home, their assets must be used to fund the cost of their care until virtually exhausted. At that point, state Medicaid steps in to defray costs until the patient passes away.
What about the house? The question arises, “what about mom’s (or Aunt Ruth’s) home?” One answer may be a reverse mortgage. (You may revisit my blog on this topic at www.tommcallister.com and clicking on “A Reverse Mortgage? Me?”) In most states a primary residence is exempt from Medicaid eligibility calculations, with two basic
conditions:
 The net value of the home may not exceed $500,000
The owner must sign a form stating his/her intention to return to the home. The latter must be done even though the likelihood of such a return is remote.
Of course, someone must pay for the maintenance, taxes, insurance, and general upkeep of the now-unused house, and family members may well decide to handle those matters. But when your mother, father, or aunt or uncle passes away, Medicaid expects to be reimbursed for the nursing home benefits it provided. Proceeds from the sale of the home may or may not fully cover the costs. Rarely do funds remain to reimburse the family member who picked up the costs of maintaining the home.
Keeping the home in the family: If a natural (not an adopted) child:
1. lives in the home for at least two years and;
2. can prove he/she cared for the parent (thus allowing that parent to avoid nursing home care during that period of time);
the cared for parent is then allowed to give the home to that child without incurring any Medicaid penalties.
There are restrictions, however. The home may be gifted only to natural children, and this gift can create tax consequences for the recipient. If a child has lived in the home for two or more years, no capital gains tax would apply to the first $250,000 of the value of the home when it is sold. A parent who was able to qualify for Medicaid assistance would, of course, be unlikely to face estate or gift tax consequences on the gift of the home.
While Medicaid rules vary from state to state, and even if this little known provision does not apply where you reside, it might prove important to relatives in other states.
Obviously, the provision is meant to encourage care giving by family members. The child provides personalized care, and in exchange, the parent gives up the home when he/she grows too ill to stay in it.
I thought you’d want to know, and I know you’ll want to share with others this very favorable “quirk” in the law which helps seniors to spend more precious time in their own homes, close to their loved ones.
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