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Mother-in-law diagnosed with Alzheimer's early stage. Proceeds used for care and pay rent to daughter in next years until ALZ is worse. If later MIL uses up all monies and needs apply for Medicaid, how is this transaction looked at?

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As others have said see an attorney on all this. Medicaid does a five year lookback and requires that the applicant disclose all real property sales or transfers with a possible penalty for nondisclosure.

One issue for real property (homes, land, cars) is that all details are recorded by your local assessor &/or courthouse and this data is dovetailed into the state system. It is a simple set of keystrokes for the Medicaid caseworker to find out when, to whom & to the penny what property sold for and what the tax assessor value was for the property at the time. I imagine it is done automatically for all applicants as family just leaves stuff off the application either intentionally or not. If you do below FMV, you better have documentation from a licensed & registered real estate appraiser as to why it would be of lower value.

Otherwise mom will face a transfer penalty by Medicaid. Transfer penalties are pretty sticky to deal with when it comes to homes & land, (i dealt with one on a car and those are somewhat easier paperwork to deal with) you'll likely need an attorney to work it out for you. So pay for good legal now or pay later.

Please keep in mind that transfer penalties vary by state due to being based on your states Medicaid NH reimbursement r&b rate. It is day based. So like for TX, a 50K transfer penalty = 345 days that she will be ineligible for Medicaid to pay for her NH stay. 345 days is a really long long time for family to either private pay for her stay OR move the elder back into their home as they do not have the $ to private pay. Now whomever got the below FMV home, can re-transfer the property back to the elder but you have to have family that will do this. The house is now theirs and if they flat will not do this or private pay for care, then the rest of the family has to deal with the mom / NH problem. Not pretty.

I think most assessors send out the tax bill in Oct or Nov that is due in January. Be on the lookout for it so you have defined $ figure to work with.
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See an elder law attorney to discuss Medicaid Planning. After two years of medically necessary care the house can be transferred to a child caregiver without invoking a Medicaid penalty. Maybe they should consider a different scenario. Mom keeps her house and relative pays her rent that could then be saved for facility living in the future. Mom is the one that needs to be protected. And if she is early stages of dementia, it is even more important.
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There is probably a better way to accomplish this. It will well be worth their time and dollars to consult with an attorney about an orderly transfer of property with a guarantee that your mother will be able to live there throughout her life if needed. Something does not set right in my mind with her selling the property perhaps below fair market, then paying rent each month. If your MIL is in the early stages of Alzheimer's, chances are the 5-year look-back won't be relevant if she needs to apply for Medicaid. The logistics of the transfer need to be examined, however. For example, if your MIL sold a $200K house for $100K, then paid $1K each month to live there, it may raise an eyebrow or two. It could be totally legitimate, but I would get some advice.

There is something else to consider -- I don't know your SIL, so don't know if it is relevant. If your mother sells her the house without a life estate clause included, your SIL could sell the house. Most kids wouldn't do this, but a few would. Having it in writing that your MIL could stay there until she died or went to live elsewhere will protect her.
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It is the "below market price" that will be the problem, if MIL needs to apply for Medicaid within 5 years, because the amount below market will be considered a gift.

I think the best bet is to consult an attorney who specializes in Elder Law for the best way to comply with the rules and achieve as much of the family's goals as possible.
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It is looked at with extreme disapproval. Play by the rules.
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