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and only wait 2 years instead of the 5 years to be able to get into assisted living? How much are you penalized if its been 4 years?

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It is always better to inherit a house rather than be gifted a house. If your grandma gives the house to her adult child the child will owe tax on the difference between the sales price of the house & what your grandparents paid for the house. If the adult child inherits the house they will only owe tax on the difference between what the house was worth when she passed & what it sells for.
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I would check how it works in your state regarding Assisted Living. Some states provide funds to those who qualify based on need (doctor's orders) and income.

Some states, (in NC it's called Special Assistance) pay for the person's Assisted Living costs, IF the doctor says it's needed and they meet the income requirement. In NC the lookback period is 3 years, not 5 like Medicaid. I'd check your state to see what they require.

Also, has the adult child lived with the parent caring for them and enabling them to not have to go into a facility for a period of time. I'd explore if that has any impact too.
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Are you thinking that the person getting the house is going to qualify for the caregiver exemption (to estate recovery or gufting) as grannie will be applying for Medicaid?

About the penalty, it gets placed starting from the date of the Medicaid application. It is roughly an equation base on whatever your states Medicaid program pays a facility for the daily room & board rate and the value of the gifted asset. For real property, value is usually the tax assessor value unless gotten a appraisal done (by a licensed & registered appraiser so the report has a Seal).
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A spouse can go into Assisted Living at any time they want, there is no time limit... it just depends on if they can afford the monthly fee. Grandmother could self pay using the equity in the house if she sells said house.

Now, if the spouse needs to use Medicaid, that's a different story.... usually Medicaid doesn't pay for Assisted Living unless Grandmother lives in a State that offers a waiver, which would pay part of the monthly fee. Otherwise Medicaid would pay for full time nursing home care any time Grandmother needs to use said services. There is no time wait. The 5 years is a "look back" to see how Grandmother's money and assets were used. If large amounts of money were "gifted", that amount would be deducted from what would be used to help Grandmother. Grandmother would need to pay out of pocket.

Deeding over Grandmother's house to an adult child within that 5 year look back would cause a loss of Medicaid funds to be used for nursing home care. One is usually penalized by how much the house is worth [equity].
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