Hello Bigger Pockets,
I have a dilemma regarding the transfer of a property from an elderly friend of the family to me. This lady is 90 years old and now lives in a nursing home. At present she still has assets and I paying the nursing homes expenses privately. She doesn't have any family (including children) and wishes to give the house to me free and clear. The problem is that soon she will be required to begin applying for Medicade to cover her monthly stay once she runs out of money. The house is an asset and typically needs to be liquidated. I was wondering if anyone has experienced anything like this before and if so what advice you could offer. Medicare has specific rules about property transfers with penalties etc. if violated. I wondered if using a land trust would work or just have her will it to me upon her death (along with the lien Medicade is sure to attach since she never sold it). I could probably still live in the home meanwhile. Any suggestions would be greatly appreciated.
I am an elder law attorney in PA, and this advice is limited only to Pennsylvania law regarding Medical Assistance, Pennsylvania's version of Medicaid. Hopefully it will give you ideas to discuss with a Maryland elder law attorney.
With that said, Medicaid will typically require assets be spent down to $2,000- $8,000 depending on income levels. There are exemptions such specific property, including a personal residence by claiming an "intent to return home" on the Medicaid application, however this does not prevent the state of Maryland from claiming the amount paid through the state Medicaid program against the home. This means if the home is worth $100,000, and Medicaid paid $100,000, none of the beneficiaries are getting anything from her estate.
As you are likely aware the 5 year look-back will unfortunately cause your family friend to receive a penalty period for uncompensated transfers. In PA this is calculated by the value of all gifts in the past 5 years divided by the average cost of a nursing home, about $10,000/month. Assuming the home is worth $100,000 and transferred to you, then she'll be penalized for a period of 10 months ($100,000/$10,000). Since the nursing facility wants to be paid, they will likely file suit against whoever received the gift. There are exempt transfers for a caregiver child or to a special needs individual, but they don't fit your fact pattern.
This leaves you with only 2 options based on Pennsylvania's laws, which you can consult with a Maryland attorney for confirmation. First, in accordance with the gifting rules and depending on her assets still around, the power of attorney can transfer approximately half of her assets to someone, assuming those are her wishes, and the other half of the property will purchase a Medicaid compliant annuity to pay for the penalty period. For example she has $200,000 in assets, with $100,000 being a home and $100,000 being cash. If you transfer the home worth $100,000, she will have a penalty period of 10 months, however, a $100,000 Medicaid complaint annuity will pay for the same period of time for which she is penalized. You guessed it, 10 months. This isn't the easiest approach since you acknowledge you will lose at least half the assets, but you also can guarantee protecting half. The most common scenario is that a person only has the house for $100,000. Since this is the only asset, the power of attorney can transfer the home and take out a HELOC against the property for half the value, which will be used for the Medicaid compliant annuity. Better to receive the home for half the price than nothing at all. Second, depending on your friends health and your state's Estate Recovery laws, the power of attorney can put your name as joint owner on the property with rights of survivorship. Since Estate recovery cannot go after non-probate property, technically they cannot go after the home since it doesn't pass through probate. In PA, Estate Recovery now sees this as an uncompensated transfer, so the person in the facility must survive for 5 years in order to be outside the 5 year lookback.
Trusts are typically applicable when planning 5+ years before skilled nursing care is required. Find an elder law attorney in Maryland, and review your options.
@Clay Lingg Welcome to the BP forum community. Suggest you complete your profile, add your picture and continue to contribute.
The challenge of trying to help a 3rd party assist an elderly friend with specific issues on a national/international public forum is that any advice must be restrained and general in nature.
In CA, where I've been working probate and elder law matters for three decades, our state program is called Medi-Cal, administered by Department of Health Care Services. It's often erroneously referred to as Medicaid or Medicare, due to the similar names.
Planning is most certainly possible and has many advantages. I helped a member of my own family and found an estate planner financial services adviser who specialized in Medi-Cal planning. It cost several thousand dollars and they saved potentially hundreds of thousands of dollars by assisting with evaluation, program administration, and monitoring.
There are high quality facilities who will accept program participants, however some facilities are clearly undesirable, in my observation.
Since the heirs or beneficiaries also stand to benefit from smart planning, it would make sense to me that they should be involved on both planning and funding the plan.
Thanks for the useful advice.