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Deciding to sell a house to pay for senior care depends on the senior's unique circumstances and care needs. The senior's financial situation, including their current income and savings, long-term care insurance coverage, and eligibility for government benefits like VA pension or Medicaid, is a crucial factor in this decision.
Eligibility for Government Benefits
Prior to considering the sale of your home to cover the expenses of a nursing home, it is crucial to explore first your eligibility for government programs, such as Medicaid or VA benefits, which can potentially fund your nursing home costs. Should you qualify for these benefits, selling your house to afford nursing home care may not be necessary.
When determining Medicaid eligibility, your primary residence is not considered a countable asset in assessing whether your net worth meets the required limit. For instance, as of 2024, Medicaid's asset limit for eligibility is $31,175. If your assets fall below this threshold, you may qualify for Medicaid, which will cover your nursing home expenses without the need to sell your house. Therefore, even if you possess a home valued at $150,000, you can still be eligible for Medicaid since your primary residence is excluded from the countable assets when evaluating eligibility.
It's important to note that while a primary residence is not considered a countable asset for Medicaid eligibility, it may still be subject to Medicaid estate recovery upon the beneficiary's death. In other words, after a Medicaid recipient passes away, Medicaid can seek reimbursement for the nursing home care costs it covered by making a claim against the deceased's estate, which typically includes the home, unless certain exceptions apply.
Impact of Selling the Home on Government Benefits
Selling your home before submitting a Medicaid application can impact your eligibility status, as Medicaid has strict asset limits in place. Although the value of your primary residence is exempt from these limits, the cash proceeds from the sale will be added to your net worth. In New York, as of 2024, Medicaid's asset limit for an individual is set at $31,175. If the proceeds from selling your primary residence cause your assets to exceed this threshold, you may need to spend down the excess funds on care expenses before becoming eligible for Medicaid benefits or engage in estate planning strategies to become Medicaid-eligible.
When You're in Immediate Need of Long-Term Care
If you require immediate long-term care in a nursing home, selling your house to cover the costs while awaiting Medicaid approval is an option. However, this may not be the most advantageous strategy. Consulting with an experienced elder law attorney can provide invaluable guidance in exploring various alternatives tailored to your specific circumstances.
For Medicaid applicants who have substantial cash assets and require immediate nursing home care, the gift-and-loan strategy is a commonly used legal approach to qualify for Medicaid. This method enables individuals to secure prompt access to nursing home care while their Medicaid application is pending, and at the same time, safeguard a significant portion of their wealth for their family members.
In a gift and loan transaction, an individual gifts a portion of his assets to family members and lends another portion with a promissory note that must meet specific legal criteria. The loaned amount is repaid over a period that aligns with the Medicaid penalty period, allowing the individual to qualify for Medicaid benefits while preserving some assets.
The Medicaid penalty period is a time frame during which an individual is disqualified from receiving Medicaid benefits due to a gift or transfer of assets to a third party within the five years preceding their Medicaid application. This five-year window is known as the Medicaid lookback period, during which Medicaid meticulously examines all financial transactions that occurred in the 60 months leading up to the submission of the Medicaid application. If your financial records reveal a monetary gift or the transfer of a significant asset at a value below fair market value, such as selling your house to your child at a price lower than its true worth, you will face a period of Medicaid ineligibility, also referred to as the penalty period. The duration of this penalty period is determined by dividing the amount of the gift by the average monthly cost of care in your area.
To illustrate, consider a scenario in New York City, where the average cost of nursing home care per month is $14,273. If you decide to sell your house and receive $500,000 in cash proceeds, you will exceed Medicaid's asset limit of $31,175 as of 2024. To ensure Medicaid eligibility while also leaving a portion of the proceeds to your children, you can engage in a gift and loan transaction. In this arrangement, you retain $31,175 in cash to meet Medicaid's requirements, gift $235,000 to your children, which will initiate the penalty period, and allocate the remaining $233,825 to cover your nursing home expenses during the penalty period. The penalty period is funded through a loan transaction with your child, documented by a Medicaid-compliant promissory note, where the monthly income payments are used to pay the nursing home. The penalty period in this case is calculated to be 16.5 months, derived by dividing the gift amount of $235,000 by the average monthly nursing home cost in NYC, which is $14,273. As a result of the $235,000 cash gift to your children, you will be ineligible for Medicaid for 16.5 months. Throughout this 16.5-month penalty period, you will be responsible for covering your own nursing home care costs, amounting to $235,504.50 (calculated by multiplying 16.5 by $14,273). These monthly nursing home care costs are covered through a loan transaction between you and your child, in which you lend $233,825 to your child for a period of 16.5 months, and your child repays you the principal plus interest on a monthly basis, effectively covering your nursing home care expenses.
A gift and loan transaction is one legal way to become Medicaid-eligible when planning within the Medicaid lookback period. However, there are several ways to be eligible for Medicaid to cover your nursing home care costs depending on when you start your planning process. It is recommended to consult an elder law attorney like us for legal guidance on the effects of a selling a home in order to pay your nursing home costs. There are tax implications as well as effects on need-based government benefits when selling your home. Should you need assistance, the Law Offices of Albert Goodwin are here for you. We are located in Midtown Manhattan, New York, NY. Call us at 212-233-1233 or email [email protected] to schedule a consultation.
About the Author
Albert Goodwin Esq. is a licenced New York attorney with over 17 years of courtroom experience. His extensive knowledge and expertise make him well-qualified to write authoritative articles on a wide range of legal topics. He can be reached at 212-233-1233 or [email protected].
