Renting out parents home when they are in care covered by Medicaid. What are the legal/financial pitfalls if any?

Windy, renting is a big hassle even without the complication of medicaid. My dad rented my grandparents house after they moved to town and the renters just about destroyed it, they also skipped town and left him holding the bag with huge unpaid utility bills.
I don't like the idea of leaving the house empty either. If it were me I would sell, one less worry in settling the estate after they are gone.

If you rent to a related party ie nephew you better make sure that nephew is paying rent that is comparable to non-related party. If less you will have issue of gifting to nephew. The IRS will be looking for a tax return with rental income for your parents which will incur taxes. When renting it is customary to take depreciation against rental income which will muddle up MERP recovery settling out value of house. You lose lock on property taxes in some places since it's not owner occupied any more. Plus difference in insurance for a rental property that will also need nephew to have renters insurance. And if state income tax is assessed it may cause other problems.

Can't answer your second question as to the Medicaid issue.

But I agree with GSA on the first issue. All good points, especially the issue of depreciation of what becomes a rental property if your nephew moves in.

Another issue is whether your nephew can handle the maintenance and repair, such as if the furnace breaks down in the winter. You might have to identify and select trades to step in and take care of these kinds of issues. Other issues would be whether the nephew would be responsible for lawn upkeep, etc.

You'd have to trust your nephew implicitly; otherwise, anything and anyone could end up living there. Tenants bring in pets, friends, don't keep up the property....

One of the tenants of the cottage my parents owned kitty corner across from their house was responsible for a fire when her son was playing with matches in bed. Another, someone from my father's church, was a deadbeat, didn't pay his rent, and when he left dumped a lot of trash (including a collection of old license plates) in the shrubbery behind the cottage.

Another called me on his way up north to tell me that the furnace had gone out. I had to rush out to get it fixed or shut off the plumbing.

My sister rented out her condo when she bought another house, but she hired a management services, and everything went smoothly.


I'm not conversant enough to answer your second question as posed, but I can offer that allowing the house and acreage to become vacant means that someone (you??) will have to arrange for maintenance of both and you'll need someone on scene or close to ensure that the maintenance actually happens.

In addition, property will deteriorate if it's not lived in and kept up to occupied standards. The heat needs to be kept at least at a minimal level in winter and the A/C needs to be set at a maximum level as well or you'll be dealing with the issue of condensation, moisture, possibly mold and probably some unpleasant smells.

You'd also need someone to check on the inside of the house regularly.

When my parents were Winter Texans, I shut the water off when they left, but still checked regularly to ensure that the heat was still working. And one day, lo and behold, it wasn't.

I waited until about 10 pm, shivering in the cold, for a service to come. But that wasn't the end of it. Dad had had a new furnace installed - I think it was one of those ventless ones and the contractor didn't know how to fix it. So another one was called in, I believe the next day. Another trip after work.

It did get fixed, but I generally checked weekly and the furnace could easily have broken down the day after I checked. Then the house would have been without heat for almost another week.

These houses can be demanding taskmasters.

If folks are on medicaid and I sell the house, isn't that also a huge problem because now they would have assets that would disqualify the medicaid?

Windy -

Yes, selling the house will be an issue for Medicaid. It will disqualify the old folks for Medicaid until the proceeds of the sale are used up paying for their care. No one can be gifted or given any money from the sale of the house for any reason - that is a divestment of assets and Medicaid again will have a problem with that.

I can't say I'd advise renting, either, as others have mentioned, that's a big headache - you have to be sure it's being rented for a fair market amount, not one of those "I'll rent it to family for $1" things - Medicaid will definitely have a problem with that. It'll be looked at as circumvention of their policies.

The only safe move I see for you at this point is to sell it and use the proceeds to continue to pay for the old folks' care. If they have life insurance policies, make sure they are placed in trust with a funeral home to pay for their final expenses - that way Medicaid can't touch those either.

Windy Get Thee To An Elder Care Lawyer!,
There may be variants on Miller Trust etc to put assets into for their care without blowing Medicaid. Unless house has super great feature or location like igloos Nola neighborhoods, or you think haha money will be left for you (but sibs all gone right?) I would pursue the sale and trust plan. Maybe a long term care option through your state that dovetails with Medicaid?

Windyridge, the first thing to discuss with your parents is not their home and acreage. First make sure you have both financial and medical POA, or that someone else has been apPointed . If someone else is already appointed, make sure mom (if competent) is totally happy with them....obviously if that person has not already taken care of asset management, they aren't doing their job efficiently. Nobody should move to asst living without already having considered status of home and acreage. As someone wrote, if you are the POA don't waste time online, get to an NAELA estate planning attorney, who has extensive experience in your state Medicaid. Renting out the home to a nephew has a slim chance of benefitting anyone except the nephew, and a huge chance of looking like an illegal gift when applying for Medicaid. There is a really good book by Gabriel Heiser which you can purchase from his website or find at your public library. Basically the home will have to be used for parents care....the only way anyone could inherit it would be a community spouse not in need of Medicaid, a dependent /disabled child (claimed on your parents tax return as a dependent, this does not extend to grandkids or nephews), or if the child or grandchild lived at the house for over 2 years (someone update this please ) and provided full -time caregiving duties to parents without receiving (?) compensation (?) (I am a bit fuzzy on those details, someone please update those ). Basically it is very rarely a home gets to stay in the family when seniors go on the government dole....this is the way it should be, can you imagine everyone just having the government pay everyone's nursing home bill, and letting billions of dollars of real estate be inherited instead of using those dollars for the bills?

Dear Windyridge, you are so smart to plan ahead! I would highly recommend consulting with a good Elder Care Law Attorney in the state your parents reside in (assuming they will also be in a facility in that state). My father passed away recently so I had to move my mom into a nursing home in another state (50 miles away from their home) to be near my brother. The only asset my parents had was the home that still had a mortgage. While mom was in the nursing home as 'medicaid pending' status, I had to quickly sell the house.

By consulting with an Elder Care Attorney (I fired one and found another so make sure you get references and check out a few) she gave me the the advice to open a Special Needs Trust in my mom's name. The proceeds from the sale of the home and life insurance death benefit settlement was placed into the trust without effecting her medicaid qualification. The money can be used for things that mom needs such as the $600 fee for a private room outside of what her 'resident liability' covers, computer, electric wheel chair, clothing, etc.). Now, when my mom passes medicaid will recover the remaining money in the fund but that's fine with us.

I totally agree with Llamalover, long-term care planning is best done with your financial planner, and they will usually have a great reference for a genuinely good estate lawyer. It is never a good idea to wait until an imminent need arises -- that is not "planning" at all, that is crisis management, never a good idea. If you go shopping for a lawyer in the middle of crisis, any type of crisis, usually you don't end up with one of the better lawyers, you just go with the first available one. And the better lawyers are not usually available on short notice.

Mallory. Regarding your post about keeping the home and ripping of the taxpayers for medicaid funds, no where have I stated that this was my intention. I posted the question to get advice on how to deal with the property while my folks are in care. my parents will be on private pay, then possibly medicaid if they live long enough, then medicaid would be reimbursed as per state law.

If your implying that I'm looking for some kind of profit, I strongly resent your inference.