Avoiding estate recovery while attaining Medicaid eligibility was reviewed in Medicaid Series Part 5. But protecting the home so the Medicaid recipient will have some inheritance to pass along comes with a few burdens. Although each situation is different, here are some questions to consider when preserving a home until a Medicaid recipient passes away. These questions are relevant for a single person or a couple that both live outside of the home because of their care needs.
1. How will the bills get paid? It is not uncommon for a house to remain vacant while the former occupant resides in an assisted living community or skilled nursing home. In some cases, the house may have expenses such as a mortgage or home equity line of credit. This may make keeping the home less feasible. If the house is paid off there will still be property taxes, homeowner’s insurance, and utility bills to pay. In addition, if the home is a condo it will likely have monthly association fees.
Although a Medicaid recipient is able to keep the home, they will not have enough assets nor income to pay the expense to maintain it. Some families find a family member or trusted person to move in or choose to rent out the home. That option will be discussed in item 2.
If the family chooses to leave the house vacant they then have to decide how those bills will get paid. Here are a few solutions that families have used.
• The children of the Medicaid recipient financially contribute in equal shares to maintain the house since they know they will equally share the sale proceeds when their parent passes away.
• One child pays the expenses. As long is there appropriate authority in a power of attorney, a promissory note and mortgage is done. The mortgage is recorded against the home so that child will get paid back before distribution of the sale proceeds upon the sale of the home.
• Some families have done gift planning prior to applying for Medicaid and choose to use the money that was gifted to them or an irrevocable trust to pay the home expenses.
2. Do you want to be a landlord? Several families I have worked with have decided to sell the home because they don’t want to become a landlord on behalf of their parent in assisted living or nursing home care. These families then took advantage of other planning techniques to preserve assets but they just didn’t want to fuss with renting the home.
Here are some things to consider when deciding whether to rent the home.
• Do you know someone that needs a home? Many times, a family member of the Medicaid recipient will move into the home. Extreme caution should be taken when allowing this to happen. Unfortunately, it is not uncommon to evict a family member such as a grandchild who moved in when grandma or grandpa left and then failed to pay the bills or take care of the home. The occupant must also be willing to move out when the owner of the home passes away or shortly thereafter when the family is handling the estate of the former owner.
If a responsible and trusted person does move into the home, they may just cover the bills so that no income is being generated which would impact the Medicaid recipient’s benefits. If you rent the home out to someone you don’t know then you will want to have a rental agreement, address vacating the property when the home owner passes away, and make sure to report the rental income and expenses as part of seeking Medicaid benefits for the home owner.
• Are you prepared to comply with local ordinances and other laws governing rental homes? The payment of fees and inspections may be required in order to operate the home as a rental. Repairs and improvements to make the home fit to rent will incur additional costs that someone will have to pay. You also need to report the rental to the local taxing authority so that the homestead exemption for property taxes is not being wrongfully received.
• Do association rules permit the rental of the home? If the home is in an association governed by bylaws or other rules, then these will have to be reviewed for compliance. Many associations have rules and restrictions when it comes to renting out a home. The new occupants will have to comply with the rules of the association. The owner or agent under a power of attorney for the owner will have to monitor compliance with these rules and handle problems relating to violations.
Although it is great news that someone who needs Medicaid benefits can pass on a bit of inheritance by preserving the home, there are a lot of factors to consider. Seeking appropriate advice is the best way to make the decision that is right for your family.