Connie’s Dad died several years ago. Her mother is elderly and lives alone in the family home. The house is in Connie’s mother’s name alone. Connie is worried that her mother may become ill, unable to care for herself and need to go into a nursing home. Connie is concerned, however, that if her mother does need to live in a nursing home, her mother’s house would have to be sold to pay for her care.

Connie has several options to avoid having to sell her mother’s house to pay for nursing home care.

The best option is for Connie’s mother to purchase long term care insurance. Long term care insurance pays for nursing home care that Medicare and health insurance will not cover. (Medicare only covers up to ninety days of nursing home care). Without long term care insurance, Connie’s mother will have to pay for her nursing home care out of her own pocket, which can be very expensive since the average monthly cost of nursing home care is just under $5,000.

Unfortunately, not everyone qualifies for long term care insurance. If a person is too old when they apply (75 years or older) or in poor health, the insurance company will probably not offer coverage, or if it does, such coverage would be very expensive. Also, if a person does not have, as a general rule, over $250,000.00 in assets (including her home), its probably not worth paying the premiums. (What to look for in a long term care insurance policy will be the subject of another article).

In the event Connie’s mother does not qualify for long term care insurance, Connie’s second best option is to have her mother give her the house and reserve a life estate for herself.

With a life estate, Connie’s mother has the right to live in the property for the rest of her life rent-free. Connie’s mother would be responsible for paying for the property’s taxes, insurance and maintenance costs. Upon Connie’s mother’s death, the house would automatically go to Connie without need for probate or other court action.

The reason why this preserves the house from nursing home costs is due to the way “Medicaid” works.

Medicaid is a federal program which is administered by the states. One of the things that Medicaid pays for is the nursing home expenses of elderly persons who do not have enough money to pay for their own care.

Medicaid usually requires a person to exhaust most of their own assets before it will pay for nursing home expenses. One asset that is exempt from this requirement is a person’s home so long as that person intends to return to that home. The Government does not want to force people to sell their homes to pay for their care and then have no place to go when and if they return home.
By retaining a life estate in her property, Connie’s mother owns her home for Medicaid purposes. Therefore, she does not have to sell her house to pay for her nursing home care.

When a person dies who has received Medicaid funds, the State of Rhode Island, which administers the Medicaid program here, places a lien on that person’s probate estate. A person’s probate estate consists of property that was held in her name alone.

In Connie’s mother’s case, her home is not a probate asset-when she died it passed automatically to Connie and no Medicaid lien attached.

This is one way to have your cake and eat it too. However, it is not without risks.

First, Connie’s mother should be sure that she wants the house to go to Connie only-and not to others as well. Once her mother dies, its Connie’s house and no one else’s. This concern is particularly important when there are other children who might inadvertently get cut out of their parent’s estate.

A second risk is that after the conveyance of the house to Connie, Connie’s mother will be ineligible to receive Medicaid funds for period of time. (How long a period of time and how this is determined is the subject of another article). Therefore, Connie’s mother should give the house to Connie well before she enters the nursing home unless she has other funds to pay for her care.

Third, by conveying the house to Connie and reserving as life estate for herself, Connie’s mother has made Connie part owner of the house. This means that Connie’s mother cannot sell, lease, or mortgage the house without Connie’s consent and signature. This also means that the house could be subject to Connie’s creditors.