29 Apr WHAT SHOULD I DO WITH MOTHER’S HOME?
“What should I do with my mother’s home when she is in an assisted living facility or a nursing home and is no longer living at home?” This is one of the questions that I am frequently asked at initial consultations. Since all of mother’s income will typically be needed to pay for assisted living, or be required to go to the nursing home, other sources of funds are needed to maintain the home. There is no one right answer here. Family dynamics, financial resources, and the proximity of the home to family members come into play. The typical options are leaving the home vacant, having a family member or tenant occupy the home, or selling the home. Each one of these options will be discussed in this article.
The first option is to keep the home without renting it or having a family member move into it. Since the home is a Medicaid exemption (ESS Manual 1640.0307.04), keeping the home will not affect Medicaid qualification. However, there is a limit on the equity value in the home of $603,000.00 in 2021 (ESS Manual Appendix A-9). This figure is indexed to increase each year. The problem with this option is paying the expenses of the home while it is vacant. Taxes, Insurance, maintenance, and sometimes mortgage payments make it difficult for children to maintain the home. Sometimes, if a family member moves into the home and covers all expenses, under certain circumstances the home will maintain its homestead status. It is critically important for the home to not lose its homestead exemption, since Medicaid Recovery can lien real property other than homestead property when a person dies.
The second option is renting the home. Although mother’s home will lose its homestead exemption when rented, mother will still qualify for Medicaid since rental property is another Medicaid exemption. This can be a good solution to the problem, but there are many rules that must be followed to qualify property as rental property to protect the home from Medicaid Recovery after the owner’s death. There may also be a loss of income tax benefits if the home is sold. However, income tax benefits are unimportant if the home is held until mother’s death. There will be a step up in basis to fair market value at that time and, therefore, no income tax to the children on an immediate sale of the home. An Elder Law firm with a Board Certified Elder Law attorney can guide a family through these rules to avoid Medicaid disqualification and/or Medicaid Recovery.
The third option to this dilemma is selling the home. This option raises the problem of what to do with the proceeds from the sale if mother applies for Medicaid to help pay for assisted living or to pay for a nursing home. Since a single applicant for Medicaid can have no more than $2,000.00 of countable resources, something will have to be done to protect the proceeds of the sale. While there are solutions to this problem as well, in most cases the best solution is to purchase Rental Property. If that solution is being seriously considered, it may not make any sense to sell the home in the first place, unless the home cannot be rented for some reason. The income tax consequences of a sale need to be considered as well.
As explained in this article, there are solutions to the problem of what to do with mother’s home when she is no longer living there, but each one has its own pluses and minuses. A careful analysis of the specific facts of the case and a clear understanding of the Medicaid, Real Property and Tax laws are essential for a positive outcome.
If you would like more information on what you should do with mother’s home, call the Elder Law Center of Mondschein and Mondshein, P.A. to arrange for a FREE telephone consultation.