home loan finance blog
The largest financial risk that seniors face today is the potential of assisted living and nursing home costs to devour the nest egg that has taken a lifetime to build. Many will end up relying on Medicaid to pay these costs. If thats the case for you, chances are that Medicaid will come after your home when you die.
Before you get alarmed, make sure that you are not confusing Medicare with Medicaid. Medicare, available to seniors who have paid into the governments Social Security system, covers roughly the first 100 days of skilled nursing home care following a hospital stay of at least 3 days. Medicare doesnt help with custodial care.
Since Medicare is, in essence, insurance you have paid for through payroll taxes, the government cant try to reclaim that money when you die. Medicaid, on the other hand, is a welfare program that provides health care to the poor of any age. Qualifying for Medicaid requires the patients liquid assets to be no more than $2,000, not including their home.
Traditionally, Medicaid has allowed a patient to keep their home while theyre in the nursing home. Since Medicaid doesnt force the sale of the home at that time, many seniors assume they will be able pass it to their heirs at their death. Recent actions by states are making that less likely.
Back in 1993, Congress passed a law that required the state agencies that run Medicaid to make every effort to get reimbursement for the money spent on each patient. This means the states are required by law to take any assets remaining at death, up to the amount spent by Medicaid. So if Medicaid spends $75,000 for your care, the states will seek to recover $75,000 from your estate when you die.
For years, many states completely ignored this law or only casually attempted to recover Medicaid costs. But those days are over. Facing budget crunches and exploding health care costs, many states are now aggressively pursuing recovery of their expenses.
There is a whole industry devoted to shielding seniors assets from the government so that they qualify for Medicaid. These include the use of irrevocable trusts, placing assets in the name of a child or the purchase of an annuity. But there are already rules in place that disqualify you for Medicaid when assets have been transferred to a trust or child within 3 to 5 years of your application. It will not surprise me to see states try to make it harder to move or otherwise protect assets.
More common are situations like this hypothetical one. A widow named Thelma develops dementia and Ted, her son, moves his mom out of her house and into a nursing home. Thelmas meager bank accounts are drained and she soon qualifies for Medicaid. For the next two years, Thelmas health gradually declines and she finally passes away.
Several months later, Ted is preparing to fix up the old home place as a retirement home for him and his wife. But hes shocked when he receives a notice from Medicaid that $85,000 is owed to cover the cost of Thelmas nursing home care. Ted will then have to sell the old family home, get a mortgage on the home or use other money he has saved for his own retirement to pay the bill. Regardless, the result is that the bulk of Thelmas estate went to the state instead of to Ted.
What if Thelmas home wasnt worth the $85,000 that the state was trying to recover? States are now beginning to go after other assets and personal possessions such as vehicles, family heirlooms and antiques. The state can force the auction of all of Thelmas belongings by placing a claim against her estate.
The state can legally pursue any and all of Thelmas assets in an attempt to recover what was spent on her care. Fortunately, the state can NOT seek to recover any remaining shortfall from Ted.
Investigate the procedures of the state where care is being received, because each state has different standards and procedures for Medicaid cost recovery. The trend will continue for states to increase their attempts at Medicaid recovery from estates of recipients. Be aware so you arent caught off guard.