Tenants in Common - Medicaid Implications
My 62 year old mother in law ("Jan") has $80k in a 401k, $2k in savings, and owes $170k in principle on her house that she bought in 1999 for $180k. She was recently diagnosed with what we believe to be a disabling condition (1 month ago) and has incurred over $200k in hospital bills. She lost her job a month before being diagnosed. She is transitioning to Cobra for her health insurance, but has already eclipsed the maximum benefit for the calendar year.
Here's the scenario: Jan doesn't qualify for Medicaid based on her 401k. The plan is to liquidate her 401k to pay down her mortgage (which should be an eligible spend-down, as I understand it). At that point, I believe she would qualify for Medicaid; however, she would not be able to afford her monthly house payments. To enable her to stay in her home, my wife and I are considering paying down the remainder of the loan and taking a % interest in the house as "tenants in common" under the following scenario:
Jan's fair market value for the home: $234,200 according to Zillow.com
Jan's purchase price in ~1998: ~$180,000
Jan's remaining principle in 2012: ~$170,000
Jan to pay down mortgage by ~$70,000 with her 401k (which appears to be an eligible spend-down tactic to qualify for Medicaid).
That leaves Jan with ~$100,000 in principle on her loan
Jan's daughter and son in law to pay off remainder of loan and be listed on the title as "tenants in common". Daughter/Son-in-law's percent ownership is proposed as that fraction of the principle that has been paid (e.g. $100,000/$180,000=55%).
Would this transfer of assets be considered a "fair market value" transfer (without penalty under Medicaid), or if we were to have a 55% ownership, would we have to pay Jan 55% of the $234,000 to qualify for the "fair market value" stipulation?
Upon Jan's death, would the state be able to recover any of the daughter and son-in-law's portion of ownership in the home (e.g., what is the risk associated with us losing our money)?
Thanks for the insight!