There Are Many Choices When Using Real Estate to Pay For Care

Seniors who are cash poor but high in real estate equity may have more options than they realize when dealing with long term care – and they might not always be the obvious ones.

A common immediate reaction is to want to transfer the house to the children and then immediately apply for Medicaid either at home or for nursing home care. That direct action, unless there is a clear exception such as a disabled child or Caretaker Child under the regulations is most often a mistake and can disqualify them for benefits.

Another frequent solution is to sell, spend down the funds in assisted living, and when the money runs out, move to a nursing home and apply for Medicaid. This does have the appeal of living in a more attractive environment for a longer time. Tax breaks for assisted living expenses, when properly used, can stretch the funds. Veterans’ Aid and Attendance benefits, for those who qualify may provide another resource. Assets need to be monitored to extend the stay in assisted living and moves to nursing home care need to be timed since many facilities prefer admitting new residents who are able to pay privately for a period of time before Medicaid picks up the cost.

Reverse mortgages for those who intend to stay in their homes indefinitely can offer another alternative. One concern may be that, if the senior’s condition worsens to the point she has to move and the house is unoccupied for over a year, the mortgage would go into default.

There is no one right answer for everyone but here are some ideas.

Family Agreements can use real estate equity to compensate family members who help and those who contribute.

The majority of Medicaid (government) funds are used to pay for nursing home care, and not for at-home care and services although there is an at-home Medicaid waiver program with very strict income requirements. On the other hand, a senior could “hire” her children privately to help with her care, and in this way extend her time at home and compensate those children and family members who actually assist her. Another possibility is to set up a system where adult children contribute financially toward paying for care by an outside caregiver and other expenses needed by the parent but can be paid back when the house sells.

There needs to be a written agreement. It generally must be entered into before services are performed or payment made. Over the past few years, our office has prepared many such Family Agreements with flexible terms.

For cash poor but home equity rich parents, if repayment can be delayed until the house is sold, children can “invest” in their parents.

Here is how.

Private Reverse Mortgages. A private reverse mortgage can make the adult child become “the bank.” We prepare a Mortgage giving the adult son or daughter an interest in the house. The benefit is that the terms can be flexible. For instance, there might be no default on a parent leaving the house but payback comes at the time of sale when the title clerk hands the adult child the check. Done properly, there are no Medicaid “gifting” penalties and the child’s interest is preserved and comes ahead of Medicaid.

Joint Tenant With Right of Survivorship. An adult child could buy fifty percent of the value of her mother’s residence and actually pay for it. The cash from the child can be used to support mother’s care at home and assisted living expenses if mother moves. On mother’s death, the child would become the sole owner of the property.

Life Estate. Mother could sell her home with the help of a realtor and a real estate law firm, and then move in with son or daughter. Under federal law, mother could, without losing her right to Medicaid benefits later, buy a life estate in son or daughter’s home and pay them for the life estate as long as she lives for at least one year in their home after the purchase.

Rental and Contribution to Household Expenses. Mother or father could sell their home and move in with son or daughter and pay reasonable rental or contribution to household expenses under a written Family Agreement.

These are only a few ideas we have used. Each family has its own “thumb print” and suggests different answers.

For more, listen to “50+ Planning Ahead” a weekly radio program on WCHE 1520 on every Wednesday from 4:30 pm to 5:00 pm with Janet Colliton, Colliton Law Assocs., PC, and Phil McFadden of Home Instead Senior Care.

About the Author Janet Colliton

Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.

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