This is the second of five columns describing strategies to protect the financial security of married persons whose spouses are in nursing care. The first column explained why divorce is not a good plan for preserving assets for a spouse when the other spouse is in a nursing home. It explained that there are four better ways to protect the “community spouse.” This column and the next three each explain the pros and cons of one plan, how it works, and in what states it is available. This column discusses home investment as a way to shelter assets.
My last post introduced Sam and Hazel. Sam recently became a nursing home resident and will not be returning home. His monthly nursing home bill is $8,000, far above their combined income. They have a homestead worth $200,000 (even at today’s depressed home values) and $200,000 in savings. This puts Sam and Hazel well above median household net worth of around $180,000, but spending $8,000 a month just for Sam’s care will deplete their savings rapidly.
The Medicaid agency tells Hazel that their home is not counted and Sam could be eligible for Medicaid when half of their savings has been expended on his care. Hazel would like to know if there is an alternative plan that would allow her to keep more of their savings.
Before she came to my office, Hazel asked for advice from her usual counselors. Her hairdresser told her to empty out all of the bank accounts and bury the cash in the yard. The bank teller told her just to put her bank accounts in her children’s names and the Medicaid agency will never find the money. Her income tax preparer said that there is a five-year look-back, so it is too late to do anything. Finally, an insurance salesman at a seminar tried to get her to buy an annuity that he said would protect all of her assets against creditors, tax collectors, probate, nursing home costs, inflation, deflation, recession, depression, revolution, fire, flood, hurricane, and an asteroid strike. Fortunately, she did not act on all of this bogus advice.
There are several ways that Hazel could take advantage of the Medicaid homestead exemption to protect her financial security through home expansion, improvement, or purchase. There is no limit on the homestead exemption for a community spouse. Furthermore, all adjoining property owned by the community spouse is considered part of the homestead.
A farmer in Michigan named MacDonald was concerned because his wife Elsie went into a nursing home. I advised him to purchase an additional 40-acre parcel adjoining his farm to use up excess funds. As soon as he purchased that parcel, Elsie became eligible for Medicaid.
The house next door to Hazel was up for sale for $130,000. I advised Hazel to offer $110,000 for this home as soon as Sam became a nursing home resident. The seller was under pressure to sell, so Hazel got a bargain. Because the two lots were adjoining, the second house became a part of Hazel’s homestead and was exempt.
After Sam became eligible for Medicaid, Hazel would be free to sell the house. A community spouse has no asset limit after the institutionalized spouse becomes eligible for Medicaid, so the fact that the money might come back to her would not be a problem regarding Sam’s Medicaid eligibility. Because it is based on Federal Medicaid regulations, this strategy will work in almost every state. One notable exception is Pennsylvania, which does not exempt a second residence on homestead property. However, even in Pennsylvania additional vacant land adjoining the home would be exempt.
A Pennsylvania client named Pansie who did not own a home used $350,000 of excess funds to buy a half interest in her daughter’s $700,000 residence, and moved in with her. Because she lived with her daughter, her interest in the house was exempt. Pansie’s husband Phil was approved for Medicaid without a problem. Two years later, when Pansie wanted to move, her daughter bought back Pansie’s interest.
There are many ways that the homestead exemption can be used to protect the financial security of the community spouse. The simplest ways are home improvement projects. Putting a new roof on the house or updating the kitchen are ways to put excess funds to good use. Purchasing and moving into a more expensive home can also result in a more comfortable environment, eliminating stairs and other aspects of the former home that could become problematic if the community spouse becomes less mobile and able to maintain house and yard.
As noted above, the community spouse’s homestead is an exempt asset in all 46 states, the four commonwealths, the district, and the territories. The details vary, most states exempt the home, itself, and all adjoining land owned by the Medicaid applicant or recipient. For more information about these Medicaid devices, or for a referral to an Elder Law attorney in your state, commonwealth, district, or territory, please call either of the numbers below or visit my website and click on the “contact” button.
John B. Payne, Attorney
Garrison LawHouse, PC
Dearborn, Michigan 313.563.4900
Pittsburgh, Pennsylvania 800.220.7200
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