My father-in-law has had a life estate for 22 years, the house actually belongs to the two daughters. He is now in assisted living and needs to apply for Medicaid, but the girls are afraid Medicaid can come after the sale proceeds of the house since the father is still alive even though he will never be able to return to the home. They wish to sell the house to avoid having to maintain it.
- if we sold it, 85% of the income would be mine, 15% would be attributed to her and we'd lose a lot to capital gains taxes from my 85%
- if we revoked the Living Estate, any money from the sale would be vulnerable to Medicaid look back
- if we *rented* the property (which is what we went with), the income would be considered Moms (and go toward paying her AL rent) and when she dies, the condo would be mine at market value (step up) and there would be no capital gains taxes at all. The additional income from the rental would be offset by the medical deductions she could take from the AL rent. If we have to go the Medicaid route, we'd look into a pooled income trust, but still be able to keep the condo as an income source, which would go to me when she dies.
I hope that helps somewhat.
The stickies with this will likely be:
- was LE an irrevocable LE? or an irrevocable LE?
My understanding is if irrevocable, then asset is a math problem for Medicaid like GuestShoppe mentioned. Please carefully review LE. This is not imo a DIY project to determine as it was eons ago. I'd get a NAELA elder law atty to do this. If revocable, medicaid probably will view house as nonexempt asset till sold (with that $ used in a spend-down) or ownership status changed (like dad has it revoke back to just his name which makes it exempt Medicaid asset but subject to Medicaid compliance & MERP).
- and does FILs state view property to be inherited via a LE to be exempt for MERP (estate recovery)? If so what paperwork needed? And if not, will heirs likely qualify for exemptions or exclusions to MERP?
- and whatever the above are, can the Sisters afford the costs on the property & for how long & without the likelihood of reimbursement?
If dad is looking at needing Medicaid in the very near future, you really need to get LE, will, assessor bills, etc and see atty asap. Also please pls make sure that the current AL will take Medicaid (AL is a waiver program for Medicaid) & if so, will the AL ensure that dad can transition from PP to Medicaid the day his $ runs out.
Another thing..... since dad did an LE, did he also do or update his will 22 years ago? Or was the plan that since an LE, no will was needed? If no will, he probably needs to get one done. I hope he is still competent & cognitive.....
To me, if the elder doesn't have fixed desire to return home & family really are not interested in property &/or cannot afford parents property, house needs to be sold asap AND before ever submitting Medicaid application. It will give all more flexibility as to how $ is spent down. The atty will have options to suggest (like a special needs trust that's Medicaid compliant).
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