Reverse Mortgage, Real Estate, and Medicaid
Answers to your questions
Note: Not Legal Advice!
Can I sell my Mother’s house as successor trustee of her trust. After she gets approved for Medicaid? My mother has dementia and I’ve been successor trustee for years. Her house is in a reverse mortgage and the only item in her trust. I will need to sell it, but how will that affect her Medicaid? Can I move the profits into an acct for her medical needs? A sitter or companion at the facility? After her death I’ll disburse what’s left to her heirs? Or will I have to sign the profits to [Medicaid] at sale?
You Must Sell The House… Or Be Foreclosed!
If Mother is out of the house for twelve (12) consecutive months the Reverse Mortgage Lender can foreclose and force a sale. Special COVID rules now delay foreclosure. And since COVID rules mutate faster than a foreign virus, call us for the latest updates. Or. You can sell the house and repay the Reverse Mortgage Lender. How much do you have to repay? Whichever is less of: 95% of the appraised value or whatever is owed on the reverse mortgage. You keep the leftover money. And since you only have to repay 95% of the appraised value, there will likely be leftovers. Which brings up another issue:
The Problem What To Do With The Leftover Money?
You must report the sale of Mother’s homestead. You have ten (10) days from the closing. Then you must tell Medicaid that the exempt homestead is gone. And that Mother has more money. More money than the $2000 Medicaid lets her keep! So next month, Mother’s Medicaid will end. And Mother will have to spend the homestead money until it is all gone. And then Mother may reapply for Medicaid. New Development: January 2021 spend-down rules prohibit Mother (or you) from spending this money to buy furniture or household goods.
Some Solutions And Strategies
NOTE #1: Your question involves reverse mortgage. However. These strategies can be used by any family considering homestead sale.
NOTE #2: Death is a factor in solving this situation. Money is another factor. Is that harsh or just clear-eyed planning? It seems insensitive to say that “Death is a Planning Opportunity”. Or to be concerned about money when a loved one is in need or dying. But going broke by ignoring reality? That’s worse than harsh or insensitive. Ignoring reality is stupid. And you cannot fix stupid. Let us remember: “Money is Choices.” Folks on Medicaid with money can pay for a private room. Or laundry service. Or a Certified Nursing Assistant. Your money that you earned can improve your quality of life in long term care. That is just the fact. And who knows? There might even be a few bucks left for the kids.
Easy, Easy, Easy! The Pooled Trust
1. Sell the house. Right now. As soon as you empty it of family heirlooms, keepsakes, bric-a-brac and your 3rd grade art projects that Mother has kept all these years.
2. Use a Charitable Pooled Trust.
-a. Deposit the sales proceeds in a pooled trust.
-b. A pooled trust is organized, created, and operated by a nonprofit organization. The nonprofit is the trustee.
-c. The nonprofit takes money from many folks on Medicaid and pools it all together. They then invest the pool of money.
-d. Each person putting money into the pool has a separate account.
-e. The Pooled Trust trustee spends Mother’s account money for Mother’s needs.
-f. No Age Limit!
-g. At Mother’s death, the nonprofit charity keeps the leftover money for its charitable purposes.
-a. Upside: Super Easy. Barely an inconvenience! Pooled Trust trustees tend to be understanding and generous spending Mother’s money on Mother.
-b. Downside: Nothing for the kids.
Easy, Easy! The Medicaid Payback Trust
Go to your friendly, neighborhood probate court. Get a court order creating a (d)(4)(A) Medicaid Payback Trust. Depending on the county, the local probate judge may have a well-established procedure for this.
1. Sell the house. Get the money.
2. Use the Medicaid Payback Trust.
-a. Deposit the sales proceeds into the Payback Trust account.
-b. You created the Payback Trust. You are the trustee.
-c. You spend the money for Mother’s needs.
-d. AGE LIMIT: Must be under 65 years old!!
-e. At Mother’s death, Medicaid gets the leftover money as payback.
-a. Upside: Still easy, although you need a lawyer. As trustee, you have complete control so long as you spend the money for Mother.
-b. Downside: Must account to probate court. Nothing for the kids.
Not So Easy – Delay, Delay, Delay! This Is Where It Gets Complicated!
Michigan allows the family to keep the homestead while Mother is on Medicaid. But the reverse mortgage company says sell, sell, sell… and pay us back.
Michigan also says, if the homestead goes through probate, Michigan gets the homestead money to pay back Medicaid. So we must plan to avoid probate. Why? So that Medicaid does not get all the homestead sale money.
And that is why we play to delay. The reverse mortgage company must give 12 months. And with COVID, it is longer. In those 12 months, Mother may need additional care or services. Or Mother may die.
While Mother Lives – Before The Sale
While Mother lives and the homestead is not yet sold how does Mother get additional services? The kids pay for the services. But! Whoever puts up the money gets a promissory note secured by the homestead. The generous kid gets paid back after the reverse mortgage company but before anyone else. We are using the homestead to leverage additional care for Mother.
Mother Still Lives – 12+ Months Later – Must Sell
If Mother survives. Now we must sell the homestead. Close on the sale. Reverse mortgage company gets paid. Generous kid gets paid. Leftovers go to Pooled Trust or Payback Trust.
Mother Dies Before Forced Sale Of Homestead
If Mother has died. Must sell homestead. Avoided probate with trust. Trustee sells homestead. Reverse mortgage company gets paid. Generous kid gets paid. Leftovers divided among all living kids or whomever else Mother chose as beneficiaries.
Are there a bewildering number of choices, options, permutations, and possibilities? Darn tootin’! Confusing? Mebbe! Worth it? Yes, indeedy! By taking the trouble, you have insured that Mother gets the best care possible. You avoided Nursing Home Poverty. You enabled Mother to get a return on the years that she and Father invested. And there will (may) be leftovers for the kids.
If it was oh so very easy, everyone would be doing it. It is not easy. Which is why most fail. But not you, not your family.
Applying for benefits does not mean Nursing Home Poverty or silly Spend Down. Learn how to preserve your loved one’s lifesavings, business, cottage, life insurance. Thousands of middle-class families have learned and use these techniques. Why not yours?
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