REAL ESTATE TRANSACTIONS IN ELDER LAW : Loans and Mortgages
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In applying for Medicaid for nursing home care, it is critical to understand the five-year transfer penalty.
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Medicaid is a federal program administered through the local county Board of Social Services where the applicant resides. Medicaid is funded jointly by federal & state governments.
This article covers the legal issues of loans and mortgages and Medicaid eligibility.
What if a parent loans a child money and takes back a mortgage on the child’s property?
A bona fide loan is not the same thing as a gift.
The terms of the mortgage will determine whether it is treated as a resource or as income. If payment is deferred until a later date due to conditions built into the mortgage, it might be an unavailable assets which will be subject to an estate recovery Medicaid lien.
What if the mortgage is in pay status? The principal and interest received in the mortgage payments is countable income in the month received.
Forgiveness of the mortgage during the 5 year look-back period prior to a Medicaid application is a transfer that causes a penalty.
Transfer of the mortgage to the community spouse is an Excluded transfer.
What if the mortgage is held by the community spouse, or had been transferred to the community spouse by the Medicaid recipient?
What if the community spouse dies, and her Will forgives the mortgage? This may be a transfer since the mortgage is an asset included in the augmented estate which is subject to the nursing home spouse’s elective share claim, if there is one.
What if the mortgage is held by a Medicaid recipient whose Will forgives the mortgage?
The Medicaid lien has priority status over such a provision of the Will.
What if a child lends a parent money to pay for ongoing expenses, because parent has insufficient funds?
Parent can consider signing a promissory note with interest, and can grant a mortgage against the parent’s house.
This can help to protect a child’s claim for repayment if the parent needs to go to a skilled nursing facility, sells the property, applies for Medicaid, or dies.
Without a Note, a parent’s repayment of a child’s prior “loans” may be viewed as gifts to the child, unless the child can accurately document each of the child’s loans/payments on behalf of the parent.
In a parent’s estate, the Note should establish the repayment as a deductible debt.