For an aging adult with a small house—or no house at all—and too much in excess assets to qualify for Medicaid, one possible solution is to purchase a new house together with one of their children.

If a parent owns a small home and who now needs additional daily assistance—or who can see the need for such assistance in the near future—the parent can sell their house, take the sale proceeds, add some additional funds and then jointly purchase another house with one of their children. I have had several clients in this situation and it has worked out great for all concerned.

Let's consider an example: George currently lives in a house valued at $100,000. His health is declining and his son said he'd be happy to help out his dad by moving in with him. However, they are aware that George may soon need around-the-clock care and will have to move into a nursing home. Since the current average cost of a nursing home is over $87,000 per year, George's money will be rapidly depleted, so they must consider how to get George to qualify for Medicaid.

In addition to the house, George has around $100,000 in other resources that would cause him to be over the limit to qualify for Medicaid coverage of nursing home costs. Although the primary residence is an exempt asset and would not preclude George from qualifying for Medicaid to pay his nursing home bills, that extra $100,000 will prevent him from qualifying, until he has either spent down that money or converted it to a non-countable/exempt asset. He can't simply give it away, because that would cause a very long penalty period, thanks to the five-year Medicaid look back.

So George decides to sell his house and then buys a larger, $400,000 house in joint names with his son. George puts $200,000 into the house and his son puts in $20,000 with a mortgage of $180,000. They own the house 50/50, with a right of survivorship. That means that upon the death of one of them, the house automatically passes into the sole name of the surviving joint owner.

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If George needs to go into a nursing home six months later, his 50 percent interest in the house will be exempt, since it is his personal residence. Upon George's death, his interest in the house passes to his son (assuming his son outlives him).

In most states, this eliminates the state's right to be repaid for its Medicaid expenditures on behalf of George, following his death. However, note that some states do recover against a joint interest after the death of the Medicaid recipient, so this arrangement may not be successful in those states.

Clearly this will not be an option in every family, since a parent and adult child living in the same household does not always work out harmoniously! However, I have seen this exact arrangement work very well for a few of my clients, so it should at least be considered when looking at your Medicaid planning options.