Must I Sell Parent’s Home if They Move to a Nursing Facility?
If a parent is transferring to a nursing home, you may ask if her home must be sold. It is common in a parent’s later years to have the parent and an adult child on the deed, with a line of credit on the house. As a result, there’s often very little equity. Other times, a home is paid for and represents the principal family wealth. If the home is used for care, there may be no inheritance left for the children.
Seniors Matter’s recent article entitled “If my mom moves to a nursing home, does her home need to be sold?” says that if your mother has assets in her name, but not enough resources to pay for an extended nursing home stay, this can add another level of complexity.
If your mother or father has long-term care insurance or a life insurance policy with a nursing home rider, these can help cover the costs.
However, if your parent will rely on state aid, through Medicaid, they will need to qualify for coverage based on her income and assets.
In Louisiana, Medicaid income and asset limits are low. However, with respect to a home, an exemption is generally allowed up to about $600,000 on the value of the home. Accordingly, homes are usually excluded from the asset limits for qualification purposes. This is provided the resident intends to return home.
However, keep in mind that this can be very deceptive. This “exemption” is not really a permanent exemption at all, but merely one on the “front end” of long term care planning. If Medicaid has spent substantial funds for your parent, the State of Louisiana will institute something called “Medicaid Estate Recovery”. If this happens, and it often does, the entirety of the home can be subject to a claim by the state of Louisiana.
In other words, Medicaid can’t seize your home on the “front end”, but they can (effectively) seize your home on the “back end” when you pass away.
In order to avoid this from happening, many smart seniors use an irrevocable trust to avoid “Medicaid Estate Recovery.”
Trusts can require the help of an experienced elder law attorney. Often, if the trust is established early enough, the home can be saved for the heirs. However, failure to plan may lead to the home being used entirely to satisfy the nursing home expense claims.
An adult child selling the home right before the parent goes into a nursing home would also not avoid the state trying to recover its costs. This can often make the situation worse, because in this case the child is trading an exempt asset (at least on the “front end”), for a non-exempt asset (cash, only $2,000 of which is exempt).
There are some exceptions. For example, if an adult child lived with their parent in the house as her caregiver prior to her being placed in a nursing home there could be an exception to Medicaid Estate Recovery. But the qualifications for these exceptions are very narrow and should not be relied upon in the planning process.
Talk to elder law attorney on the best way to go, based on Louisiana law and other specific factors.
BOOK A CALL with me, Ted Vicknair, Board Certified Estate Planning and Administration Specialist, Board Certified Tax Law Specialist, and CPA to learn more about estate planning, incapacity planning, and asset protection.
If you liked this article, “Must I Sell Parent’s Home if They Move to a Nursing Facility?” read these additional articles: When Can Estate Assets Be Distributed? and What’s the Limit for Earning with Social Security? and Is a Bypass Trust Necessary? and Can Estate Planning Reduce Taxes?
Reference: Seniors Matter (Feb. 25, 2022) “If my mom moves to a nursing home, does her home need to be sold?”