Protecting Your Home from the Costs of Long-Term Health Care
Protecting home ownership is a big concern, and it is usually the single largest asset most people have. Many purchase long-term care insurance as they are worried about the high costs of medical care and what assets might be tapped by Medicaid. What happens when the insurance is exhausted and there are no other assets?
Long-term care insurance is important; however, it’s also critical to review and revise your financial and estate plans regularly as your situation changes, according to NJ 101.5’s article “Medicaid and protecting your home.”
Speak with an experienced estate planning or elder law attorney to plan for your individual circumstances. You should also have your will, general power of attorney, advance health care directive or other estate planning documents reviewed or drafted.
As far as how Medicaid works, it has both income and asset limitations that require a recipient to become impoverished to qualify. For Medicaid eligibility, your primary residence is exempt provided you or your spouse live in the house or intend to return to the house to reside. That said, Medicaid will have an automatic lien on any interest in a residence in your name equal to the amount of Medicaid funds you receive. The program will execute on that lien when the home sells or upon death—unless the recipient’s spouse remains an owner of the residence.
To keep people from giving away their property to qualify for Medicaid, there’s a penalty for the transfer within five years of applying for Medicaid. The penalty is calculated by dividing the value of the assets transferred by the state’s Medicaid average monthly cost of a nursing home. The penalty period starts only after an individual enters a nursing home and would otherwise be eligible for Medicaid, not at the time of the transfer. During that time, Medicaid won’t pay for the nursing home. Private funds have to be used.
There are exceptions for undue hardship but these are rare. One exception is for the transfer of a residence to a child who has lived in the home for at least two years before the applicant enters a care facility and who during that period provided the applicant with care and services that enabled that person to live at home. In that situation, the transfer of the house to the child doesn’t result in a penalty. The house won’t be subject to a Medicaid lien.
Similarly, gifts and sales that are less than fair market value within five years of applying for Medicaid are subject to a penalty. But before a transfer is made, there are also income tax considerations which may significantly impact both the transferee and the applicant. If there is no mortgage, another option is a reverse mortgage, which lets you withdraw the equity in the property with the loan being paid back at death or once the property is permanently vacated.
You’ll want to speak with an experienced elder law attorney before making any decisions. Bear in mind that Medicaid is a very complicated program with many moving parts that change frequently. This will give your family needed guidance and allow you to make good decisions based on reliable information.
Reference: NJ 101.5 (September 12, 2016) “Medicaid and protecting your home”