The Home – To Transfer or Not to Transfer – Part 1
February 23, 2009
Home ownership has long been a large part of the American dream. Through the course of the 20th century, the percentage of Americans owning their homes rose considerably. In many of these homes three generations lived under one roof. Today, there still are many 3 generations homes. The reasons for it are the same. The grandparents often help care for their grandchildren while the parents are working. Sometimes the grandparents need assistance and canât live alone any longer.
There is, however, a big difference between the households of the 20th century and those of the 21st century, which generation owns the home. The parent homeowner of the 20th century now is the grandparent homeowner of the 21st century.
So now that homeowner, weâll call him Joe, is in his 70âs. His son Jim and Jimâs wife and kids live with Joe. They are concerned that as Joe ages and needs long term care they may lose the house. Jim wants to buy a house but canât afford it, even in todayâs depressed real estate market. So they come upon a solution. Joe will transfer his house to Jim or perhaps sell to Jim at a reduced price, maybe enough to pay off Joeâs mortgage. Jim will have a home of his own to raise his family and Joe will have the support of family should he need it. A win â win scenario for everyone. Right?
Well, not so fast. If Jim doesnât pay fair market value for the home then the uncompensated amount is treated as a transfer for less than fair value should Joe need Medicaid benefits in the next five years to pay for long term care.
What to do? Joe and Jim must understand that if Joe needs care there must be a plan in place to cover the cost of that care. That plan could involve VA benefits if Joe is a veteran. It could also include using Joeâs funds to pay for his care and long term care insurance benefits. But, if these sources of payment still leave a gap then Jim will need to borrow against the home to pay for Joeâs care, which may mean putting off tapping into the equity to pay for renovations or other expenses.
Provided these contingencies are covered, however, the home transfer can work well. What happens, however, if Joe is not healthy when contemplating a transfer, but instead has dementia and already needs some care. In that case, the home transfer is a little more complicated but Iâll address that in the next weekâs post.
A Two Generation Family Long Term Care Crisis – Part 2
February 16, 2009
So, in last weekâs blog I presented a common scenario, Mom and Dad both needing long term care and nothing but a house left in their names. The children are paying for their care to the tune of $10,000 per month. We get Dad on Medicaid first.
Now we work on getting Mom into a nursing home and then apply for Medicaid for her. The home will have to be sold (unless there is a family member living there but weâll address that exception in another issue) but it wonât hold up Momâs Medicaid, which is important, since it not so easy these days to sell in a what is a down market. Once the home is sold Mom will lose her eligibility for Medicaid and will need to private pay from the proceeds of the sale. She also could keep her Medicaid eligibility and pay the proceeds to the State to reimburse it for benefits paid up till that point. Which option is better depends on how much is realized from the sale and how much is owed to the State. But, keep in mind that the State pays the nursing home at a lower rate than you or I would pay (approximately 50% less).
And, what about the money that the children paid out of their own pocket for Mom and Dadâs care? They can be reimbursed from the proceeds once they sell the house. However, everything must be documented because Medicaid presumes that transfers between family members are gifts, not loans. If it is a loan then there must be a written agreement. The best practice is for there to be a recorded mortgage. At the closing the mortgage is paid off and a discharge is recorded by the Buyerâs attorney. The children are reimbursed directly and there is a record as far as Medicaid is concerned.
In the end, the parents are paying for their care from their own assets, the children are paid back (money which they will need for their own retirement and long term care needs) and depending on how much long term care is needed and what the home sells for, there may even be some amount left to transfer to the next generation in the form of an inheritance, after the State is reimbursed for benefits they paid out on Mom and Dadâs behalf.
A Two Generation Family Long Term Care Crisis – Part 1
February 9, 2009
Mom and Dad are still living in their home which they own. They both need round the clock nursing home level care and have home health aides living with them. This has been going on for a number of years and they have spent down all their assets on care and maintaining the home. Now the children are spending their own money, in some cases as much as $10,000 per month or more, with no end in sight. They want to sell the home but in todayâs economy and real estate market that isnât as easy as it once was. Their current predicament is taxing on the family, both financially and emotionally. Last week I talked about a reverse mortgage as a possible solution. Is there any other way out?
Actually, there is. There is a way to move both parents into a nursing home, get them on Medicaid and reimburse the children for monies they paid for their parentsâ care. Medicaid rules are very complex and the timing of each step in the process is critical but it can be done. Hereâs how it works.
The first step is to get one of the parents into a nursing home. Letâs say it is Dad. If he is in the hospital already (often the case when we get the call) then he should be transferred from there to the nursing home. We then apply for Medicaid. The house is an exempt asset (ie. not a countable asset for Medicaid eligibility purposes) since Mom is still living there. Once we get Dad approved for Medicaid there is what is called a âdivision of assetsâ. Whatever is Momâs is now hers, to be spent on her care but not on Dadâs. This is the key. In next weekâs blog Iâll discuss the next step, getting Mom on Medicaid.
Elder Law Today Podast Show #14 Married Couple – Crisis Long Term Care Planning
February 5, 2009
Podcast: Play in new window | Download
So after listening to Show 13 you’re thinking, we should have taken action immediately after Dad’s diagnosis but didn’t so now what do we do? In the 14th installment of his audio podcast, Yale Hauptman discusses just that scenario, crisis planning. Although the picture is more complicated all hope is not lost. Yale discusses some of the options still available to families, but timing is a key.
Yale explains how the home as an exempt asset under Medicaid rules can be used to help the healthy spouse preserve more than the maximum otherwise allowable under Medicaid rules. That could include buying a bigger house or making improvements on a current home. Learn why a reverse mortgage now is replacing a home equity loan or line of credit as the only option in crisis planning for many families. Yale also discusses ways to pay down debt that benefits the healthy spouse and other ways to help preserve hard earned money for the community spouse, who just wonât be left with much under current Medicaid rules without creative planning.
Be sure to tune in for a concise 10 minute discussion of Medicaid crisis planning that will give you an overview of what still is possible, even if you have failed to early action, but time is running out.
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Reverse Mortgages – Another Look in Today’s Economic Climate
February 2, 2009
Mom and Dad are living in their home but their health is failing. They do not yet need nursing home level care, but do need some assistance on a daily basis. Their children are running back and forth helping to provide care but it is just too difficult to do on a long term basis. The plan is to move them to an assisted living facility. The problem, however, is that they have limited funds to pay for that care. While they intend to sell the home, that wonât happen overnight.
An option that has worked well in the past is to take a home equity line of credit and use it to pay the monthly assisted living fee and real estate taxes, insurance and maintenance until the home is sold. Except, in todayâs economy with the financial industry itself being bailed out, banks are no longer approving these loans, concerned about the creditworthiness of borrowers and the risk of default. So what now?
It may be time to look at a reverse mortgage. Increasingly, this is the only option for seniors. The concern about defaulting loans is not an issue because, by its terms, a reverse mortgage wonât be repaid until the borrower dies or sells the home. The ability of the borrower to repay isnât a factor because he/she makes no monthly payments. Hence the term âreverseâ.
Over the years I have seen many cases where reverse mortgages have enabled seniors to stay in homes they really couldnât afford any longer and probably should have sold. If they outlive the funds borrowed, typically they are in poor health and now have exhausted their assets completely. It is also true that these loans carry higher transactional fees than traditional mortgages.
However, here, the plan is to sell the home as soon as possible to pay for the next level of care, not hang on too long. And, if a traditional mortgage isnât an option any longer, the higher fees become acceptable given the alternative of the children taking money from their own savings to pay the cost of Mom and Dadâs care. With an economy in recession and unemployment rates at their highest in a generation many children donât have the funds to pay for their parentsâ long term care.
Thatâs why for many, it may be time to take a closer look at the reverse mortgage.
