When a family admits their loved one into a long term care facility, they are confronted with the challenge of selling the family home to pay for such care. Uncertain of which realtor to contact, how to clean out the property, and how to value the property, the process can quickly become overwhelming for a family focused on ensuring their loved one receives the highest quality medical care.
This frustration and confusion can lead a family to sell the property for less than expected, especially given that, once sold, payment of $12,000.00 per month to the nursing home begins. This leaves the family feeling more hopeless and without other options. However, there are alternatives to selling the house and paying the nursing home with the sale proceeds.
Let me use an example. For the sake of this article, we’ll presume that only one parent, Mom, is alive and she has two children, Robert and Jane.
Families interested in purchasing the property from a parent can do so for sentimental or financial reasons. Given our hypothetical scenario, Robert and Jane know from the real estate agent that the family house is worth $110,000.00 compared to other sales on the market. Robert and Jane decide instead to purchase the property from Mom, but they can’t afford to pay the current market value of $110,000.00. Instead, Robert and Jane purchase the house for approximately half of the value, at $55,000.00 without causing an issue at the nursing home.
The reason for purchasing the house at half of the value is due to the Medicaid rules. Those rules dictate that transfers for less than fair market value, a.k.a. gifts, are penalized to the Medicaid applicant at the average monthly rate in the nursing home of about $10,000.00. Therefore a gift of $55,000.00 would be divided by the $10,000.00 nursing home care rate and then that would equal a 5.5 penalty period. Accordingly, the family must come up with $55,000.00 to pay for this gift. So in this example, the $55,000.00 Robert and Jane pay to Mom is used to pay for the $110,000.00 of real estate equity that Mom gifts to her children. So Robert and Jane net $55,000.00 of equity. However, Mom is penalized for this transaction for 5.5 months, requiring her to pay $55,000.00 (10,000 per month rate multiplied by 5.5 months). Fortunately, the funds from Robert and Jane match the amount she needs to pay for her care.
When a family does not have the money to purchase a property at half of the value, they can contact local banks for a mortgage to finance the transaction. While there are some fees, interest, and transaction costs for the mortgage process and loan, ultimately it is the bank that pays Mom for the property and the bank is paid back when Robert and Jane sell the property. Robert and Jane don’t net as much money due to the added costs, but the risk for the transaction falls to the lending institution.
If you or a loved one are in this challenging scenario, please contact Mooney Law at 717-632-4656 to schedule an appointment and determine the most appropriate route for you. WE can help. We will help. You can Count on Mooney.