How to Save Your Parents Home If They Go to a Nursing Home

Q. My eighty-four-year old mother is selling her house and moving in with me. Can she purchase a life estate in my home in order to preserve her money in case she enters a nursing home?
A. Yes, under the Deficit Reduction Act of 2005 (DRA), a person who purchases a life estate interest in another's home for full consideration and lives there for at least one continuous year does not face an ineligibility period for Medicaid nursing home benefits. If your mother expects to live in your home for at least a year, she could purchase a life estate in your current home or in a new home, which gives her certain rights to your property, including the right to live there. This provision does not apply to a transfer of property which your mother previously owned.

An attorney can assist you in determining the amount for which the life estate should be purchased, based on your mother's age and the value of the home. The life estate has no value for purposes of determining an individual's eligibility for Medicaid. As the life tenant, your mother has the legal right to live in the property for life or for a specified period without paying rent. Upon her death, the life estate is extinguished.

If you sell your home during your mother's lifetime, your mother would have to sign the deed and a portion of the sale proceeds would be payable to her as the life tenant. Those proceeds would count as her resources for Medicaid purposes.
Q. What if my mother does not sell her house? Can she transfer it to anyone without being penalized?
A. Yes. Transferring the house to the following people would not affect her eligibility for Medicaid:

1. spouse


2. child under the age of twenty-one or a child who is certified blind or certified disabled at any age


3. a sibling with an equity interest in the home who has resided in the home at least one year immediately prior to the date the patient became institutionalized and continues to lawfully reside in the home


4. a caretaker child who has resided in the home for at least two years immediately prior to the date the patient became institutionalized and who provided care.

Q. What if my mother enters a nursing home before she sells her home?
A. If her equity interest in the home is $750,000 or less and she intends on returning home, it will not be considered as a resource in determining her eligibility for Medicaid. The equity value is derived by subtracting encumbrances such as liens and mortgages from the fair market value.

Reverse mortgages and home equity loans can be used to reduce the equity interest. Medicaid law is constantly changing and is subject to various interpretations. Because the DRA is so new, there are many ambiguities and uncertainties. Do not take any action without first consulting an attorney who thoroughly understands the Medicaid rules.