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Several people have told me that mil cannot receive Medicaid or medical benefits for a facility if she has assets. The only asset she has left is her house. People have told us to sell the house and start gifting the payout in order for there to be an inheritance left.

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Oh good heavens, you are getting really, really bad advice. Your mother can own a house and still get Medicaid. If she sells it, all of the proceeds MUST be spent on her own needs. Gifting will cause a penalty.
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Sounds like my MIL. She reads all these terrible stories about people who prey on the elderly and she falls to pieces. She won't even let my hubby (who is her POA and will be executor of her estate!) look at a bank statement if it has the number of the statement on it. She'll cover half of it, let him type, the covers the first part and lets him finish. He asked her why he couldn't PLEASE just see the whole number at one, this was taking forever, and she slips me a sneaky slit eyed look and said "Well, not with HER in the room". I was 10 feet away, sitting on a chair, reading a book.

ANYTHING that hears about or reads about that concerns elders being forced out of their homes into nursing homes, taken advantage of, etc., send her screeching to the phone to call my hubby who often has to take hours to calm her down. She's 87, stone deaf and in perfect health, I have no DOUBT she will outlive hubby and his brother both!

There ARE a lot of scams going on, and she is wise to pay attention, but gets so worried about stuff that isn't true. So sad.
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Amy, a house is not a countable asset when someone applies for Medicaid. If she has no other assets and her income is low enough to qualify in your state, then she should be able to get Medicaid. There is one problem with the house. If she receives Medicaid she will not be able to spend money for taxes, insurance, and maintenance on the property. The rest of the family would be responsible for paying these things. Often families go ahead and sell the house, then use the money for the parent's care until it is spent down. This is because no one in the family wants the house and the upkeep is expensive.

If you do decide to sell the house, there are certain things that are allowed if she plans to apply for Medicaid. You can buy things like a pre-paid burial policy or do necessary upkeep to a house or car. You can buy personal items she needs or healthcare expenses. You definitely cannot gift it to anyone.

If you decide to keep the house, the state will put a lien on it and recovery will be made when the house is sold when the estate is settled. Simply stated, the house is not countable when you apply, but the state will attempt to recover money after death when the house is sold. 
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The house - if in her name and considered her homestead - is considered an "exempt asset" by Medicaid for her lifetime for most states. States do have $ limits on property value though, for most it's 500-550k but some east coast states have value higher at 750-800k; if property is over limit not an exempt asset.  Now NH medicaid requires that all the residents income less a small personal needs allowance must be paid to the NH as their SOC (share of cost). Mom will have no-none-nada of her $ to pay on anything "house" from day 1 of NH Medicaid stay till beyond her death. This is what Jessie Belle was referring to. But upon moms death, house then become an asset of her estate and subject to however assets are dealt with after death under her states Admisinstrative codes & probate laws.

Medicaid is required to attempt recovery of the amount spent by Medicaid from the assets of her estate. This is often referred to as MERP or MERS. How it is done (like if a lien can be placed on property while they are alive, some states allow this but others do not as MERP is an unsecured creditor) is dependent on moms state laws. Whatever the case mom pretty well has to be impoverished and done a spend-down to even qualify for medicaid & the only assets would be the home and any life insurance policy that named the estate as beneficiary after her death. Whomever is named executor as per a valid will ends up having to deal with MERP and the house till the estate is settled. If family has exemptions or exclusions to MERP, someone in the family will need to document those over time & submit to MERP. Sometimes family opens probate & all its details & deal with merp within probate & pay probate associated costs. 

What seems to happen is that mom goes into the NH and family is all kum-ba-ya on keeping moms empty home. Then months later Sissy fails to pay property taxes; Big bro stops cutting yard; worthless grandkid friends uses house as a crash pad. Family end up selling house and whatever funds family spent on the house is $ they are totally out of. It is probably not at all reinburseable from the proceeds at the act of sale as it would be viewed as "gifting" by medicaid unless there was tight legal done way WAY way in advance on property management costs. 

To me, unless family is all in for whatever house co$t$ are for an undetermined length of time, or could rent property within medicaid constraints and highly likely to have some exemptions or exclusions to MERP and has good reason to keep property, it is best to sell the property BEFORE ever applying for Medicaid and doing a spend down as others have suggested. Mom could live another 6 mos or 6 years......
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Also about the gifting of the payout (from house sale), the sale will be recorded and to the penny. If mom was to gift or transfer any of the $ to family, Medicaid will place a transfer penalty on her application unless she waits to over 5 full years before she ever applies.

Medicaid can do a 5 yr lookback & by applying it gives the state an all access pass to her history both medical & financial. Gifting will surface.

One big issue with transfer penalty is that the elder gifts $ when house sells and it's a couple of years later when their needs change and they now need to go into a NH and have run out of $. Family who got the $ has spent it or refuses to return whatevers left (it was a gift after all....). And it's the DPOA who ends up dealing with the situation; often DPOA will have to sign off on a contract at private pay rates in order for elder to continue be at the facility, or they move parent back into their home & caregive.

Really whomever is moms DPOA needs to take mom to see an elder law atty before she sells her home to see what possibly could be done with her $ before she ever applies for Medicaid and will be Medicaid compliant for when she (DPOA) does a medicaid application later on should she outlive her $ and become impoverished enough to qualify financially for Medicaid.
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