It is commonly understood that a single person or couple can keep their home and still be eligible for Medicaid benefits to help with the cost of assisted living or skilled nursing care. But what about your adult child’s home? It is not uncommon for a parent to help an adult child by giving them a home the parent used to live in, buying a home with their child, co-signing on a mortgage for a child, gifting money for the purchase, loaning money for the purchase, or selling on land contract.
The structure of the deal, the time that has elapsed, and the repayment obligations all become important when determining how the transaction impacts Medicaid eligibility for the parent. Here are two examples and the results.
• A child and parent are both named in the deed documenting the purchase of the child’s home. This means that the parent has a ½ interest in the home and ½ of the value will be a countable asset for Medicaid purposes. With a countable asset limit of $2,000 for single persons and $123,600 for couples – this will usually mean the parent would be ineligible for benefits. If the parent recognizes this issue and signs a deed for their share to the child, then a gift has been given which will impact Medicaid eligibility if the deed was signed within five years of filing for benefits. Keeping the parent’s name on the deed will mean the parent will be denied benefits but removing their name without the child paying the parent ½ of the value will result in a penalty before the parent will start to receive benefits.
• A parent loaned funds to a child to purchase a home. The deed is in the name of the child and the child signed a promissory note and mortgage ensuring repayment to the parent. Because this is a loan and not a gift the parent is entitled to full payment. If the parent tries to forgive the loan and discharge the mortgage before full payment there will be a divestment penalty if it is done within 5 years of the parent applying for benefits. If the child is making the payments as promised by the note and continues to do so the payments will be considered income to the parent which impacts the payment obligations of the Medicaid recipient. But if the loan term exceeds the life expectancy of the parent that needs Medicaid benefits this is also problematic and may prevent eligibility for benefits.
These are just two examples that can put a family in a huge predicament. Many times, a parent helps out a child even when the parent has limited assets. When that parent needs expensive monthly care, it is critical that a transaction to help a child does not prevent them from getting the financial benefits they need. Seeking advice from an elder law attorney can help the parent decide how they can help their child without also hurting their eligibility for important benefits.