Medicaid – Should We Just Go Ahead and Sell the House?

“My mother, who is a widow, has no savings but owns a home, valued at $200,000, and just entered a nursing home. The cost is $6,000 a month! The only way she can afford that is if we sell her house…If we don’t sell her house, the state will take it anyway when she dies, right? So what difference does it make?”

My client was in a panic, and while selling the home seemed like the only solution, I suggested the following alternative: Don’t sell the house, but instead apply for Medicaid immediately. If mom’s only asset is her home, she will definitely qualify (assuming her income isn’t unusually high).

“But if the state will take her home after her death, why not just sell it now?” my client persisted.

First of all, the state doesn’t “take” a person’s home, either during their lifetime or following their death. What happens, as a general rule, is that following the Medicaid recipient’s death, the state will make a claim against the estate of the deceased recipient, for the total amount of Medicaid benefits paid out for their care, during their lifetime. (Note that a couple of states still do not seek reimbursement following a recipient’s death, even though federal law requires it.)

Thus, if mom only lives for one year after being in the nursing home, and the Medicaid “bill” for her stay in the nursing home for that one year is, say, $50,000, then the family has a choice: keep the house and come up with the $50,000 themselves, or sell the house, pay the state the $50,000, and then divide up the balance of the sale proceeds among the family members, as provided by mom’s will.

What if mom lives for many years in the nursing home, so that the bill from Medicaid exceeds the value of the house? In that case, the state is stuck—the most it can get is the net sales proceeds from the sale of the house. It can’t go after the children for the balance.

Another reason not to sell the house: If mom applies for Medicaid now, and qualifies, the nursing home will be paid the state “Medicaid reimbursement” rate, which is always a good bit lower than the private pay rate. The actual amount the nursing home must accept varies from nursing home to nursing home, so there is no general guideline. However, assume the Medicaid rate is only $4,500/month, instead of $6,000/month. If mom dies after one year, the family may indeed have to sell the house to raise the money to reimburse the state, but it will only owe 12 x $4,500 ($54,000) vs. what it would have paid had it sold the house and paid the nursing home privately, i.e., 12 x $6,000 ($72,000). Thus, the family saved $18,000 by NOT selling the house! And that savings would increase for every additional month mom lives.

So the longer mom lives in the nursing home, the more the family will save by doing this. However, there is an upper limit: If mom lives long enough, so that the Medicaid bill exceeds the full value of the house, then in effect it will have made no difference whether the house was sold and she paid privately, or kept the house and got on Medicaid. In either case the house will have to be sold to pay for her care, leaving nothing for the family. So her age, health, and life expectancy enter into the equation.

As you can see, some careful thought must be given to this decision. What I did not discuss is the possibility of selling the house, gifting a portion of the proceeds, purchasing an annuity with some of the proceeds, adding a child’s name to the deed, transferring a remainder interest in the house to a child, transferring the house (or a remainder interest in the house) to an irrevocable trust, the interaction of the spousal protection rules if mom is married, the limitation on the amount of equity mom can protect in her house, etc., etc. To explore these possibilities, consult an experienced elder law attorney in your locale. To get a running start, however, see my book, “How to Protect Your Family’s Assets from Devastating Nursing Home Costs: Medicaid Secrets,” which discusses all of these issues and more.