Elder law and assets

July 2, 2021 7:50 AM

My parents (ages 80 and 75, USA) are old-fashioned in that they want their children to inherit their house when they die. They are low-income ($28K a year, plus whatever they get from social security) and they have no savings, investments, or retirement accounts. Literally they have their house and that's it. I think that wealthy people have workarounds such as ways of putting property into trusts or having LLCs hold them or ???. How can I find what those options are?

My parents have three children and none of us own a home, so we are reluctant to have them pass the house to us now, since it would presumably make it hard for any of us to get "first time buyer" type of loans, going forward.

We three children are all low-income ourselves, so the idea of spending $500 or more on a lawyer to find out our options is really not feasible. Also, this question is at the weird intersection of poor people (can't afford lawyers) and rich people (loopholes for preserving assets).

We've looked into pro-bono services for my parents' area, and it isn't offered for this particular topic. They referred us to the state agency (Connecticut), who said they only offer services for families at 125% of the federal poverty level, which is higher than what my parents are at.

Bonus question for people who've been through this:
Let's say Mom goes into a care-home till her death and Dad is able to stay in the family home till his death. Does the family home still get sold off to pay off Mom's care? Or does Dad retain the ability to pass it down to his kids?

posted by anonymous to Law & Government (9 answers total)

Your family needs an elder law attorney. Your state or county bar association should be able to refer you to someone.

Common solution is for the parents to deed over the house to a child and reserve a life estate in the house. However, Medicaid will still count the house towards assets that must be exhausted prior to long-term care reimbursement if it's been fewer than 5 years since the transfer (the time period may be different now).

Like I said... elder care attorney :-)
posted by Sheydem-tants at 8:02 AM on July 2, 2021 [6 favorites]

If your parents don't need to have Medicaid pay for care before they die, then, barring unusual circumstances, it shouldn't be complicated or expensive to draft a will passing their property to their children after the second of them dies. There's no need to create trusts or whatever.

Unfortunately, the odds are good that they will. There's no getting around hiring an attorney on this one. The answer varies by state and some other factors (including some you can't control, like the period between any asset transfer and the time one of them might need to go into care), so you can't get a reliable answer here, and getting a wrong one could cause you a lot of problems.

I don't think there's anything wrong with this kind of planning, but if they're no longer in a situation where it can be arranged, there's no particular reason your parents should feel entitled to leave property to their children after they're both gone if they incur large costs for care that they are unable to pay for themselves and the state has to pay for them. My mother is in a similar financial situation to them, except that she has modest savings instead of a house. Should she have to use Medicaid for nursing home care, she doesn't get to expect to leave that money to us.
posted by praemunire at 8:39 AM on July 2, 2021 [1 favorite]

I believe their home is a medicaid exempt asset. This appears to confirm that it is the case, at least for Connecticut. That means it won't be counted toward the test, so they don't need to sell it to qualify for medicaid.

That doesn't guarantee that they won't have to sell it for other reasons. $28k plus social security doesn't leave a lot for property tax and maintenance.
posted by justkevin at 8:43 AM on July 2, 2021

You probably want an irrevocable trust, which will protect the home from Medicaid if it goes into the trust more than five years before anyone needs long-term care. Unfortunately you really do need a lawyer to set this up.
posted by metasarah at 8:44 AM on July 2, 2021

Medicaid has anticipated this question, and has erected specific bars to exempting property when considering Medicaid eligibility. You can exempt some property, such as a car, but the laws are specific and anticipate that people will try to get around the spend-down rules. There is no substitute for an elder attorney, and even if it is $500 or more will be essential. For example, if one parent becomes permanently disabled/terminally ill and needs care how can they preserve their home for the other parent? If one dies can the remaining parent manage without the second Social Security income? Important questions that only a professional can help you navigate. I'd suggest calling the local (to your parents) elder organization and asking if they can suggest an attorney in your parents' area who will offer assistance on a sliding scale. They will be in an excellent position to help your parents find someone.
posted by citygirl at 8:53 AM on July 2, 2021 [2 favorites]

In my experience as a probate lawyer, the parents often have an outsized attachment to their home, one that simply is not shared by their children. Very often none of the children really want to keep the home after the parents die.

If one of them does want the home, then it can worked out to have that one buy out the interests of the others. Time enough to think about that later.

In my state, and I suspect in many others, even adding the children as joint owners of the family home, to avoid probate, is regarded as a divestment (even though the home itself is exempt) and will create complications for Medicaid eligibility if needed. We often recommend leaving things as they are as long as the parents are alive.
posted by yclipse at 8:55 AM on July 2, 2021 [3 favorites]

I’m afraid you will need to spend more than $500 on an attorney, and that it will be way more than worth it in the long run to do so. Your parents need a will, at a minimum. But any sort of trust arrangement etc will run you much more than $500 to set up where I live.
posted by spitbull at 9:38 AM on July 2, 2021 [2 favorites]

In this country we don't have a system where people get assisted living or nursing care unless they have few assets. As I, a layperson who is probably only slightly less ignorant than you, understand the situation, the parents can keep their primary residence and car while one or both is receiving care. But not necessarily after they die. And there are all kinds of rules. The one thing I would not do is put the kids on the house. That could be seen as a gift that is subject to Medicaid's 5-year clawback period, which is just as nice as it sounds. I would check with the local Area Agency on Aging (known as triple-A) to see if they have any seminars on Medicaid. You also want to check on what limits there are on probate in your state. The absolute last thing you want is to have the settling of the estate drag on for a year while paying lawyers. That is going to be way more expensive in the long run than talking to them up front. This is one of those times when it might be worth putting the legal fees on a credit card.
posted by wnissen at 10:45 AM on July 2, 2021

The first question is whether it is reasonable for your parents to try to hold to the house as a legacy for their kids or whether they need the value of that asset to fund the remaining years of their own lives.

They may get luck and be able to stay reasonably healthy and in their home up until a relatively brief final illness without needing extended care in a nursing facility. In that case, they would still own the house free and clear at their death. Assuming they don't have too many unpaid bills, the house could pass to their heirs through probating their will.

If they get very unlucky, they will spend down their assets and need to go on Medi-caid to pay for their care. If they own the house, and they need Medi-caid for one spouse, the other spouse can stay in the home for the rest of their lives but when the second dies, the proceeds from the house will be used to repay a part of what Medi-caid spent on them.

There is one option - if they give the house irrevocably to someone else, it is no longer theirs. The problem (aside from giving up ownership of the house) is that Medi-caid has a five year look-back period which means that your parents would have to stay financially solvent enough that they don't need to use Medi-caid for more than five years after they completed the transfer. If not, then the transfer doesn't protect the house and you will have extra headaches to undo it.
posted by metahawk at 9:23 PM on July 2, 2021