Many people are aware that an older person who is a nursing home resident can continue to own a home and qualify for Medicaid nursing home benefits. Nevertheless, in assisting people in my elder care practice with paying for nursing home care, I have seen that the home is often the major asset at risk or that is lost, despite the protection provided to the home under Michigan's Medicaid laws.
As an illustration, consider the hypothetical example of Mary, a widow who is age 81. Mary and her late husband, Don, purchased their home in Troy, Michigan in 1971 and Mary always wanted to stay in the home where she and Don raised their family and happily spent their retirement years together.
Mary was doing well until her late 70's, when she suffered what her doctor believes what a series of mini strokes, or transiet ischemic attacks. Mary no longer is able to handle her finances, drive, or cook for herself. Her daughter, Linda, has been paying her bills for the last several years. Her other daughter, Jennifer, helps more with Mary's personal care and has to remind her to take a shower and help Mary with bathing. Mary was always good about taking her medication in the past but then Mary started to complain about not being able to find her medication and her family would find her prescription bottles in strange places like the freezer and under the kitchen sink. As a result, Jennifer started to stop by in the morning and on her way home from work in the evening to make sure that Mary was taking her pills.
In the next few months, Jennifer and Linda noticed that Mary would occasionally have slurred speech and then she became incontinent. While she had always been an outgoing person in the past, Mary had become quite withdrawn and Linda and Jennifer felt like her personality had changed. Her short-term memory was also terrible. Finally, her doctor diagnosed her with vascular dementia and advised Linda and Jennifer that Mary really should not be living on her own any more. Mary did not want to move to assisted living and Jennifer and Linda thought they would continue to try to handle her care at home for as long as they could, though the situation made them uncomfortable.
A few months later, Mary suffered a more serious stroke and was hospitalized for 5 days and then discharged to a nursing home for physical therapy. After only 15 days of rehab., the nursing home staff recommended that Mary really needed full-time custodial nursing home care, so Linda and Jennifer made the difficult decision that Mary would need to remain in the nursing home.
During the last several months, Linda had become overwhelmed with paying Mary's bills and in dealing with her mother's health crisis, so her husband, Rick, suggested she lighten her load by selling the house. After all, Mary had not lived there for six months now, so what was the point in paying the real estate taxes, insurance, and for someone to cut the grass and shovel the snow in the winter?
Jennifer was not sure if selling the home was such a good idea, because she heard that Mary could continue to own the home if she needed to qualify for Medicaid. However, her brother-in-law Rick thought of himself as a financial guru and had a way taking over in these situations. With everything going on with Mary, Jennifer did not want to rock the boat with Rick and Linda, so she agreed that they should sell the home. The home was listed for $115,000 and, after being on the market for 9 months, was sold for $95,000.
This decision was a mistake from an asset protection perspective. In Michigan, you can own a home and still qualify for Medicaid nursing home benefits. However, the law does not allow one to sell the home and keep the cash proceeds while qualifying for Medicaid, so the only other option for a person receiving Medicaid is to keep the home. The result of selling Mary's home is that the cash proceed received from the sale are then considered countable assets for Medicaid qualification purposes and a single person cannot qualify for Medicaid if they have more than $2,000 in countable assets. Mary will either have to spend the $95,000 down to $2,000 or do some crisis Medicaid planning, described below.
Since Mary had never done any estate and long-term care planning in the past, there would still be some issues even if Rick had not insisted that her home be sold. For instance, under Michigan's new estate recovery law that took effect in 2011, the State of Michigan will seek to recover expenses paid for long-term care. It's called estate recovery because the state seeks to be reimbursed from the assets owned by the person receiving Medicaid benefits when they pass away. Since you can only have $2,000, a vehicle, and the home while qualifying for Medicaid, for all intents and purposes, the home is the asset the state will be seeking to recover against. What could have been done instead of selling Mary's home and spending all of the $95,000 before Mary qualified for Medicaid or just keeping it but having the state get everything in estate recovery after Mary passes away?
One option would have been to just keep the home and to do some estate recovery planning. The law allows people in Mary's situation to execute certain deeds, which will have the effect of avoiding estate recovery. That means the home could be kept, and if the deed was done properly, the home could be sold by Linda and Jennifer when Mary passed away, and they would get to keep the funds. This makes sense, because Mary always said she and Don wanted their children to have anything that was left when they were both gone and Linda and Jennifer had really helped Mary out with her care in the last several years before she moved to a nursing home. These special deeds have to be done just right, so they should really consult with an elder law attorney to draft the deed. However, as a practical matter, under this plan, Linda and Jennifer will still have to pay for the real estate taxes, insurance and home maintenance out of their own funds, since Mary can only have $2,000 and all but $60 of her income is paid to the nursing home each month. This may work for many families in a similar situation because the family will ultimately receive the cash sale proceeds when the home is sold.
Despite that option, sometime people find that keeping the house is too overwhelming, so they want to sell it or they have already sold it before knowing the Medicaid implications. In that case, we can still protect at least 50% of the cash sale proceeds that were received, if not more. Sometimes this is referred to as a half-a-loaf plan or a crisis Medicaid plan. These plans work, but they are complex and it's something an elder law attorney would have to design and execute on behalf of Mary.
Planning to avoid estate recovery and crisis Medicaid planning are legal and my plans work. Some people are critical of this type of planning, but they often have not been in the position of writing a check for $7,000 to a nursing home month after month. Mary and her late husband, Don, worked and paid taxes year after year for these programs, so it seems fair that they should be able to keep some of their assets. Plus, Mary is paying all but $60 of her Social Security and pension income to the nursing home each month, so she will still be paying quite a bit for her care even when she ultimately qualifies for Medicaid.
Also, some families may have a belief that they should spend all funds on deposit in banks, stocks, bonds, mutual funds, and other assets for care, and that may be appropriate in some circumstances. A major factor in this school of thought was that the family would ultimately inherit the home, so that would be enough. However, with the advent of estate recovery in Michigan, that is no longer automatically the case, so families with this belief may now want to consider estate recovery planning or crisis Medicaid planning.
There is also a third option: planning ahead for long-term care. In a future post, I will discuss the proactive planning that Mary could have done in advance to easily avoid these problems and to automatically protect her home (and the cash sale proceeds if the home is sold), by the use of a Medicaid Asset Protection Trust.