Author Topic: Structure estate to avoid losing house to medicaid  (Read 5689 times)

Mirwen

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Structure estate to avoid losing house to medicaid
« on: July 10, 2015, 11:13:35 PM »
My mother is single and planning to retire next year. I'm her only child and heir.  We've done some simple estate planning, but there's one thing I can't figure out.   She owns two houses.  She lives in one house and rents the other to me.  The one I live in has the mortgage paid off and has a basis of about $50k minus some depreciation.  Current value is about $85-90k.  Her retirement income is almost all state pension and social security.  Her income is very low, <$2k per month.

Ideally my mother has a long and happy life and when she passes on I will inherit both houses.  To help smooth this process we've filed a pay on death deed.  There's one thing that bothers me.  What happens if she needs nursing home care?  I understand that they will take her income and maybe her house, since it sounds like they take it if you don't have someone else living there.  However, I don't want to lose my home (her rental). Here are some things I've considered.

1.Buying the house from Mom with conventional financing.  Biggest negative is the tax bill for and extra income will prevent her from qualifying for insurance subsidies for a year after the sale.  This may be a no go for her because she cannot afford health insurance without the subsidies. Perhaps after 65?

2. Gifting the house / changing the deed - Gifting will prevent medicaid for 5 years after gift.  Risk to mother if she needs that money later and I'm not able to sell for whatever reason.  I will have the basis of when my mom bought the house instead of when it is transferred to me.  I'm OK with that because it's my primary residence and isn't worth anywhere close to the current exemption amount.

So what should I do?  I don't want to lose my home to medicaid because my mom gets sick.  I don't have any issue with my rent going to medicaid while I'm alive, but I just don't want to be forced out of my home.  Is there any other option I haven't considered?  Is there some way to deed the title so that they can't force a sell without my permission?  Has anyone else ever dealt with medicaid assets for qualifying?

Bearded Man

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Re: Structure estate to avoid losing house to medicaid
« Reply #1 on: July 10, 2015, 11:49:49 PM »
Not to sound insensitive, but you sound more concerned with how to get your moms money that she worked for and may need if she get's sick, than you are with your mom and her well being. Maybe it's time for you to spread your wings and move out of your moms house and build your own wealth and let her use her money that she earned so that she can live comfortably in her last years.

You didn't mention how old you are, but I know several people at work who make 70-90K a year salaries and even in their 40's they live in one of their moms rentals for a discount and are counting on inheriting all of her money while they piss every penny they earn away right now. Time to grow up and stop sucking on moms tit is what I want to say to them, but alas, I don't think the cord was ever cut for some people, nor will it ever be.


Not to sound insensitive, but ...
Oh bearded man, I'm not sure there's any other way your comment could sound because it was the ultimate in insensitivity.

People get old and die (yes, even parents) and estate planning is not always about a money grab. my mom doesn't have much, but I'd like for her to keep it when she needs to get nursing care, so I'm interested in answers. I certainly don't want or need any of her almost non existent assets, but while she's alive, I don't want her to have the feeling that she's lost everything she ever earned.

Pointing out a fact that someone is more worried about not having to move out of their moms house at the expense of HER not having HER hard earned money when she needs expensive care is the ultimate in insensitivity, but an obvious money grab by, as noted, a son who lives in her rental and is more worried about not having to move than his mom being able to use her money to pay for medical care is kosher. Ummmm...OK.
« Last Edit: July 11, 2015, 09:27:51 PM by Bearded Man »

ZiziPB

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Re: Structure estate to avoid losing house to medicaid
« Reply #2 on: July 11, 2015, 04:11:00 AM »
How about a sale with seller financing?  I don't know anything about Medicaid but in terms of taxes and her income it should be about the same as you paying rent to her, except the title would be in your hands. I'm assuming the sale and the financing would have to be on arms length terms in order to avoid issues. 

Potterquilter

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Re: Structure estate to avoid losing house to medicaid
« Reply #3 on: July 11, 2015, 04:17:17 AM »
You need to talk to an attorney, especially if you can find one who specializes in elder law or real estate.  The second property makes it more tricky. 


BlueHouse

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Re: Structure estate to avoid losing house to medicaid
« Reply #4 on: July 11, 2015, 04:27:58 AM »
Not to sound insensitive, but ...
Oh bearded man, I'm not sure there's any other way your comment could sound because it was the ultimate in insensitivity.

People get old and die (yes, even parents) and estate planning is not always about a money grab. my mom doesn't have much, but I'd like for her to keep it when she needs to get nursing care, so I'm interested in answers. I certainly don't want or need any of her almost non existent assets, but while she's alive, I don't want her to have the feeling that she's lost everything she ever earned.

Dee18

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Re: Structure estate to avoid losing house to medicaid
« Reply #5 on: July 11, 2015, 04:53:40 AM »
I recently learned a bit about this when accompanying my mother to an attorney to amend her trust.  The attorney (who seemed extremely knowledgable as well as patient) urged my mother to consider protecting some of her assets from Medicaid, but my mother is past the point where she could cope with that.  I wish she had consulted with this attorney a few years ago.  Look for an attorney who specializes in elder law. I definitely plan to do this for myself at the appropriate time. 

Mirwen

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Re: Structure estate to avoid losing house to medicaid
« Reply #6 on: July 11, 2015, 09:47:03 AM »
I'd like to compartmentalize the estate planning from judging my relationship with my mother please.  Let's just say that my mother and I are very close and our finances have always been entwined with support going both ways.  I wouldn't make any assumptions about who worked hard for the house just because she is on the deed, it's a joint venture and she makes a nice profit from renting to a stable tenant.

I'm not comfortable paying for an attorney before I know what I need to do.  If it's as simple as changing a deed, we can do that without an attorney.  If we'd need a trust, I'd like to know exactly what I'm asking for before I contact an attorney.  I support a family of four on an income of $34k per year, so a few hundred (or thousand) in attorney fees is a big deal for me.

Potterquilter

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Re: Structure estate to avoid losing house to medicaid
« Reply #7 on: July 11, 2015, 08:01:02 PM »
Estate planning is like everything else in your financial life. There is nothing wrong in taking advantage of laws as they are written. Cheating is a very different thing. We moved post eR to a state that has much lower taxes and protects your assets. A very wealthy friendly state. Some people figure out Roth conversions to take advantage of lower tax rates or shift income and losses from one year to the next. People create trusts, employ their kids and put their wages into an IRA. Some live below taxable income levels.  Some things I would not do, But see nothing wrong with it as long as you are following the law.

Getting back to your question, have you tried looking at forums that discuss these kinds of things? We use an attorney for these types of questions. Money well spent but you have explained why you don't consider that an option. Maybe you could see if there are any pro bono legal services in your area.

Mirwen

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Re: Structure estate to avoid losing house to medicaid
« Reply #8 on: July 11, 2015, 10:39:00 PM »
@Potterquilter:  What state did you move to?

Thanks for the comment.  Considering other states' medicaid programs never occurred to me.  I live so close to California and medi-cal is so different.

shadowmoss

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Re: Structure estate to avoid losing house to medicaid
« Reply #9 on: July 12, 2015, 12:07:15 AM »
I fully understand this.  My Dad went into a nursing home.  Mom was given a month to spend all their money on herself, anything she wanted FOR HERSELF, and then the rest went to Medicaid.  Never mind that she has many years to live now that he is gone and their combined savings is now gone.  I applaud you for thinking ahead, as their are the claw back issues as you noted.  Once someone actually needs the Medicaid it is too late to make the arrangements.  Dad lost his parents' farm back when I was a kid in the same manner, my Grandmother went into a nursing home and they took the farm.  It is a real issue to be confronted, even when there is no 'money grabbing' going on.

Potterquilter

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Re: Structure estate to avoid losing house to medicaid
« Reply #10 on: July 12, 2015, 05:26:35 AM »
Mire in, I am starting a thread about moving when ER because I don't want to hijack the thread and i think people will have useful advice

Axecleaver

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Re: Structure estate to avoid losing house to medicaid
« Reply #11 on: July 12, 2015, 05:51:12 AM »
For long term care there is a five-year lookback period. Any transactions involving transfer of assets to trusts or family are examined very closely. After her death there is estate recovery that the state will use to recover the cost of her care. If you have five years to spare, look into methods to transfer the real estate sooner rather than later.

iris lily

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Re: Structure estate to avoid losing house to medicaid
« Reply #12 on: July 12, 2015, 06:18:58 AM »
The look back period is 5 years. Today. That could change to 3 years. or etc.

justajane

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Re: Structure estate to avoid losing house to medicaid
« Reply #13 on: July 12, 2015, 06:45:13 AM »
Aren't the options of type of facilities and the type of rooms she can be in effected by being on Medicaid? Has your mother said that she is okay with sharing a room and only living in certain facilities? The reason I ask is because my grandmother was in a private room in a nursing facility, but if she had gone on Medicaid, she would have had to switch to a shared room that was not as nice. She lived to 100 and almost had to go on Medicaid, but she was an intensely private person and would have hated sharing a room. Might be something to consider that both you and her understand how or if the options are altered by this decision.

chasesfish

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Re: Structure estate to avoid losing house to medicaid
« Reply #14 on: July 12, 2015, 09:37:09 AM »
You need to get an appraisal on the house then have her sell it to you at market value and finance 100% of the purchase price on an amortizing loan at a market rate.

If the loan is setup like this, here is what her income will look like:

5% Interest Payable Monthly
Annual Principal Payment

$90,000 House
$6,000 Annual Principal Payment
Monthly Interest

The annual payment will be realized as an installment sale, so if her basis is $45k, then half of that $6,000 is recorded as a gain.   She'll also realize $4,500 for the first year's interest income.

That's the best option you have to keep the income to her low while doing this legitimately.  Anything else, you're trying to game the system.  Personally, as a hefty taxpayer, I would have a problem supporting taxpayer subsidies (medicare) for your mom while she clearly has assets.

Mirwen

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Re: Structure estate to avoid losing house to medicaid
« Reply #15 on: July 12, 2015, 10:56:15 AM »
You need to get an appraisal on the house then have her sell it to you at market value and finance 100% of the purchase price on an amortizing loan at a market rate.

If the loan is setup like this, here is what her income will look like:

5% Interest Payable Monthly
Annual Principal Payment

$90,000 House
$6,000 Annual Principal Payment
Monthly Interest

The annual payment will be realized as an installment sale, so if her basis is $45k, then half of that $6,000 is recorded as a gain.   She'll also realize $4,500 for the first year's interest income.

That's the best option you have to keep the income to her low while doing this legitimately.  Anything else, you're trying to game the system.  Personally, as a hefty taxpayer, I would have a problem supporting taxpayer subsidies (medicare) for your mom while she clearly has assets.

That is a really great option.  I like it a lot.  I was under the impression that selling the house with seller financing would still record the entire profit as a taxable event in the year of the sale and would just introduce more unnecessary complications than conventional financing.  I'll have to read up more on installment sales. 

Mirwen

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Re: Structure estate to avoid losing house to medicaid
« Reply #16 on: July 12, 2015, 11:37:53 AM »

You stated your mom just retired.  What do you think the chances of your mom needing to go on Medicaid in the next 5 years? 

My mother is 61, is overweight and has well managed diabetes but no other risk factors.  She has a great diet now and lifts weights to stay healthy.  I think the odds of her needing care anytime soon are very slim.  She will probably never need more care than I can provide.  But, I'm her only family and if I can't give her all the care she needs by myself I'd probably have to put her in a home.  I'm starting to have to support and care for my mother-in-law too who is nearing 70 and is already on medicaid.  Luckily my household is not her sole source of support.  Her other son helps some too, but he is already caring for his father. 

Watching my in-laws family tear each other apart over the care my husband's grandfather has needed (and continues to need) for several years and the resulting financial and emotional mess has really brought this to the front of my mind.  Three of them working together have extreme difficulty caring for him and they refuse to put him in a home.  I don't want to be dealing with caring for my mother, my mother-in-law, managing their finances and being forced from my home at the same time. Not to mention raising my own children and possibly working too.  I can deal with the house now, so I'd like to do that.  Better to do it before SHTF.

Edited for clarity and details.
« Last Edit: July 12, 2015, 05:05:04 PM by Mirwen »