With life expectancies increasing more adult children are forced to confront how their parents’ long-term care will be paid for. That’s the dilemma one MarketWatch reader faces who writes, “Both of my parents will need long-term care soon, and my family is wondering what the best way is for them to pay for it. We’re concerned their cash will be drained in the next six to 12 months. They’re not on Medicaid at the moment, but they have a house that has been in trust for only three years, and their children are named as beneficiaries. Will we need to sell the house, or can they get a reverse mortgage to pay for their long-term care? Will they need to go on Medicaid?”.

[read more]

Today thousands of older adults are asking the same question. A question that only a qualified professional should address. So what’s the best course of action?  Have the parents spend down all their assets to qualify for Medicaid, get a reverse mortgage, or sell the house and hope the proceeds cover their required care?

While the situation may appear hopeless MarketWatch reminds the reader that they still have time to make plans- although the likely outcome is that her parents end up enrolled in Medicaid. 

Brian Tully, founder and managing partner at Tully Law Group advises a two-pronged approach: get the parents the care they need and protect some of their remaining assets. “You never want a family to run out of money,” said Tully. “You always want them to have some money left, whether it is a retirement account, proceeds from a reverse mortgage they’ve moved to children, or a healthy spouse. You always want to have access to money.” 

To sell or not to sell. That is the question

It’s not surprising that adult children looking to fund their parents’ care would look first to their largest asset. But selling the house should be the last resort says MarketWatch noting “Even if your parents did end up on Medicaid, the house is an asset they don’t have to give up while they’re still alive. Medicaid rules vary state by state, but in New York, for example, a primary home is exempt from total assets while the individual receiving care is living there, or intends to return there after their time in a nursing home.” 

In other words, selling the home converts and asset that otherwise may have been exempt from Medicaid’s spend-down requirements into cash, cash that would likely jeopardize their ability to qualify for the program.

Reverse mortgages and Medicaid

So should an elderly couple requiring long-term care shortly get a reverse mortgage instead to fund it? Not so fast. Originators should proceed with extreme caution lest they find themselves or their lenders facing a lawsuit. MarketWatch advises, “You could get money from a reverse mortgage through a single lump sum, or regular fixed monthly payments, but that again can disqualify your parents from Medicaid eligibility — or require them to spend down those assets quicker than they otherwise would have”. 

In this instance, both the past and present assets would be scrutinized. Each state has its own rules for a ‘look-back period’. That is the time period prior to applying for Medicaid that the state will examine financial transactions. For example, in California Medi-CAL staff will examine all cash or liquid assets 30 months before the application. The state of New York has a five-year lookback period. Any assets exceeding the program’s threshold will penalize the applicant and postpone any benefits for a determined time based on the value of those assets. 

Considering these complex and life-changing regulations a qualified and trustworthy estate or eldercare attorney should be sought out to help make sense of the state’s specific rules. I would add every reverse mortgage professional watching should have at least one trusted and reputable eldercare and estate planning attorney they can refer potential borrowers to and consult with.

Funding one’s retirement in part with a reverse mortgage is relatively straightforward when compared to the complex guidelines and regulations that govern Medicaid eligibility. Therefore, it’s wise to truly know your client’s unique circumstances before moving forward.

[/read]