Mon, 2 March 2009
As we discussed last week, Joe wants to transfer his home to Jim, who lives there with his wife and children. But let’s change the facts a bit. Joe is not healthy but has the early stages of dementia and needs some in home assistance. It is possible that within 5 years he will need nursing home care, so we are concerned about the 5 year Medicaid lookback. What options do Joe and Jim have?
One possibility is for Jim to buy the home at a price that he can afford but that may be below fair market value. If, for example, he purchases the home for $200,000 and it is worth $450,000, then $250,000 is considered a gift subject to the Medicaid transfer penalty. Jim can spend down the $200,000 for his care but if he runs out of money then Jim may need to cover the cost of care until the 5 year time frame expires.
Now that Joe lives in Jim’s home, they could enter into an agreement for Joe to pay rent. If Jim or his wife is providing care that Joe otherwise would need to hire an aide to do, then Joe could pay Jim to do it. This is what is called a personal services contract. Food, utilities, and other goods and services that Jim may be providing, can and should be paid for by Joe. Perhaps the home needs to be modified to allow Joe to live there. Jim could spend money to make those improvements when they become necessary, borrowing against the home.
Some or all of these strategies may be ways for Jim to, in essence, pay Joe for some of the remaining uncompensated value of Joe’s home, over time, in a way that may be more affordable for Jim. However, each of these financial arrangements must be in writing. That’s because Medicaid presumes that any transfers of money or services is a gift, subject to a transfer penalty, unless it is in writing and at fair value.
But, a word of caution. The Medicaid rules are complicated. What will work in one state may not work in another. What may suitable for one family may be entirely the wrong solution for another. If you try to do it yourself and get it wrong, you may find yourself with a lengthy period of Medicaid ineligibility and no money to pay for care. You need a knowledgeable and trusted elder law advisor to guide you through the maze of laws and regulations that leave hidden traps for the unwary.
Category:Long term care planning -- posted at: 6:00am EDT