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My mother was recently approved for Medi-cal and is in a long term care facility. Her husband will be going into long term care soon. The house is still being paid for, and her husband pay monthly IRS payment for back taxes owed. If all funds will be going to the nursing home, how do I address their current bills? Mainly, I'm worried about the house payment and life insurance premiums. Won't be able to pay them if all of the parents income will go to the nursing home for Medi-cal share-of-cost. Do I try to cash out the insurance policies and keep the money for burial costs? Do I contact the mortgage holder and tell them my parents can no longer pay because of the need to pay share-of-cost for Medi-cal? I'm not sure how to proceed once my parents are both in a safe environment. Appreciate any insight and suggestions. I live in California, if that matters.

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this is such a tough situation. Yes you are right about the state making a difference. Medicaid is a joint federal & state program and administered by each state. So each state puts it's special spin to it as how the state deals with property both current and after death is dependent on each states laws. My mom still has her Medicaid exempt asset empty home and is a NH on Medicaid in Texas, I've been executrix for 2 aunts so have been through the probate system to deal with their assets in TX and NM, so my experience is based on those states. I've always worked with an attorney to do stuff, it's just so much easier.

How I see it, is there are 3 separate issues:
Debt - this debt exists whether there are NH issues or not.
So many have credit card debt that they never can repay. Does yours?
Just how much debt is there overall.... mortgage is how much?
What is the IRS situation? Has it gone to a tax lien on the house?
What could the house be sold for realistically? Is it underwater & by what %.
What is the other costs on the house - property taxes, insurance, utilities, etc.
Will the house be empty once your dad goes into the NH?
Do you or other family member want the house?
Can you afford to maintain the house for 1 year, 5 years or more?
Imho you need to figure out if it is worth it to pay anything on the house or just walk away from it and let it go into foreclosure. If you decide to pay for all for the house, be realistic if you can afford to do this for years. Now for my mom's house, I and another family member pay for all for the empty house; it doesn't have a mortgage and there are wonderful neighbors who watch the house, so it's manageable. Upon her death, we will file a claim against the estate for all monies spent and the sale of the house will provide the reimbursement, the amount also will be deducted from her Medicaid estate recovery tally too. This wasn't the plan but what we're stuck with in that the house was & will be a difficult sale.
Keep in mind that creditors can't seize your parents social security BUT the IRS can do a levy of up to 15% of their monthly check. You need to find out if the NH will expect you to pay or make up the difference that the IRS can take.

Community spouse stuff:
Dad is "community spouse" and he is allowed to have higher assets than your mom who is impoverished enough to go on Medicaid. He can spend his assets and income on whatever is his personal property or personal needs. Keep in mind that he will need to spend down his $ before he enters NH, so if he has 30K in savings, he needs to spend it BEFORE day 1 of his going into the NH or all of the 30K will have to go towards paying for the NH and there will be no flexibility to spend the 30K on anything else. There might be something you could do to use his $ to pay off the mortgage, or the tax lien so that his assets get down to the 2K allowed by Medicaid. If the Medicaid rules in your state are such that an IRS levy on SS needs to be made whole by family in order for the NH to accept the resident, then you might want to use his money to pay off the IRS.

Insurance:
If he has a cash value to his insurance policy, Medicaid usually requires that it be cashed out and used towards his NH costs. But since he is NOT in the NH yet, the policy could be cashed out now and used for other things. But it has to be spent, if it sits in a bank account, then it can be made to be used for his NH care. If he doesn't have a funeral or burial policy, I'd do that and it needs to be NCV - no cash value policy. Most states have it that they can have a small insurance policy - now if he is ill or old you really almost pay the full cost of the policy (so a $1,500 policy costs $1,300) but it is money to use after they die and less to the NH now.
Also I'd go an get all his and your mom's legal done if it hasn't been done. I'd spend the rest on new, comfortable and easy care clothing, hearing aids, dental care (this is spotty on Medicaid and very expensive), glasses.

Do not contact the mortgage holder. If you do and tell them the situation they could call the note and it would be due in full.

All these issues are sticky and you really should go to see an elder care attorney - you really might need one to put the rush on the insurance company to cash out the policy quickly anyways. Good luck.
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