SAVING YOUR OWN HOME FROM NURSING HOME COSTS
By: Sanford R. Altman, Esq., retired
My mother is in her seventies, in relatively good health and, out of nowhere, said to my sister and me, “I don’t want to lose my house if I have to go into a nursing home.” While we tried to assure her that this was never going to happen, it did start us worrying. What can we do to keep her home safe?
Your mother is not alone in her concerns about her residence. This is the number one issue of the vast majority of my clients who come to me for elder law planning. Whether they have a little or a lot, seniors always want to ensure that their home ends up with their children, not paying off a nursing home bill. The good news in your case is that your mother is starting to think about it while she is still in good health. This allows for planning in advance which readers of this column know is one of the items that I have constantly encouraged over the years. But even late planners can safeguard a portion of their assets just not quite as much. Since the home is generally one’s possession of the greatest value and emotional ties, it is often the focal point of asset protection planning.
Since the only government program that will help to pay for long term care costs is Medicaid, elder law planning will often look at obtaining Medicaid for the client sooner rather than later to cover nursing home costs. When determining eligibility for Medicaid, your home is viewed as an
“exempt asset”. In New York, your residence can be worth up to $750,000.00 and you can still be eligible for Medicaid. However, this is a case where the government gives with one hand and takes away with the other. While Medicaid is paying for your nursing home, they have the authority to place a lien on your “exempt” home for every penny that they spend on you. In other words, they are, essentially, sucking the equity out of the home that you thought you would be passing on to your children.
How do we prevent this? One of the main strategies is to transfer your residence to your children while you retain a life interest, technically called a “Life Estate”. This allows you to live there while you are alive and, immediately upon your death, the house belongs to your children. But before you run out and have a lawyer draw up the deed, there are several things you need to know. Having your children on your deed is a big step. They actually have an ownership interest in your property. If you decide you want to sell the house and move to Paris and they don’t agree, you may well be out of luck. Selling your home requires all owners to sign a deed, including your children. If you want to take out a home equity loan, they also have to sign. Also, if you do sell the property for more than you paid when you bought it those many years ago, your children may have to pay capital gains taxes. While there are some techniques to avoid this, I typically only advise doing this kind of transfer if you, at least intend to remain in your home indefinitely.
Finally, when you add your children onto your deed with a retained life estate, the government regards this as a gift from you to them (though less of a gift than it would be without your life interest). As you maybe aware, when you give a gift within five (5) years before you apply
for Medicaid, you may be found to be ineligible for Medicaid for a certain amount of time. This is called the “penalty period”. The more you give, the longer you have to wait. While you are waiting for Medicaid, you may be paying for the nursing home out of your pocket at a rate of $10,000 – $15,000.00 per month. Therefore, though most of us cannot foretell the future, this type of deed transfer is best utilized if you think it is unlikely that you will need a nursing home in the next five (5) years – another pitch for advanced planning.
What are the benefits of transferring your home subject to your retained life estate? While there are several non-Medicaid related benefits such as avoiding probate, the key benefit for someone who may need Medicaid in the future is that, as the law stands now, Medicaid will not place a lien on your home if all you own is a life estate. This can mean that even if you are in a nursing home covered by Medicaid, you can still pass on your home to your children.
There are additional techniques for protecting your home even for those who may not have the luxury of five (5) years before they need a nursing home, and these will be a subject for later articles.