Q. Our mother is in assisted living and may need to go into a nursing home soon. To raise money for her ongoing care, we are thinking of selling her home which is now vacant. Any thoughts as to whether that makes sense?
A. Yes. In some cases, selling the home may be appropriate. However, consider also the following: selling mom’s home may undermine her ability to qualify for a government subsidy to help pay for the cost of care, whether now in the Assisted-Living Facility (“ALF”), or later in a nursing home. Reason: once she receives the sales proceeds she will then likely be “over resourced” and not eligible for government benefits to ease the cost of care. Instead, by taking steps to preserve her access to government benefits, her own resources will last longer and minimize the risk that she will run out of money.
Background: There are two key government programs designed to subsidize the cost of long-term care: (1) the Veterans Pension Program, which works best for wartime veterans or their spouses receiving care in an ALF setting, and the (2) Medi-Cal Long-Term Care program which is designed to subsidize care in a nursing home. Both programs have resource ceilings: individuals with countable assets which exceed those ceilings do not qualify.
Were you to sell mom’s home, the sale proceeds would likely cause her to exceed those resource caps. She would then be ineligible for benefits and would then be obliged to rely upon those proceeds to pay the full cost of care. Over time, those funds would be spent down and, perhaps, exhausted.
Where she would otherwise be able to qualify for one of the subsidy programs, a better approach would involve selling the home inside a very specially designed irrevocable trust, which I sometimes call a “House Trust”. This trust is designed to preserve home sales proceeds while also preserving eligibility for government long term care benefits. Caution: this House Trust is very different from the more commonly known “Living Trust” with which you might be familiar.
Using this plan, your mother’s home would be transferred into this House Trust, and only then would it be sold. Because the home would then be owned by the trust, the proceeds would go to the trustee rather than to your mother. If properly designed, this trust would (1) permit the sale of the home as contemplated; (2) preserve her eligibility for a subsidy under either the Veterans Pension Program or the Medi-Cal LTC program; (3) permit indirect access to the home sale proceeds to pay for her care expenses to the extent not subsidized by government benefits, (4) preserve her eligibility for the $250,000 capital gains exclusion associated with the sale of her personal residence, notwithstanding the transfer of her home to the trust, and (5) protect the proceeds from Medi-Cal estate recovery after your mother’s demise.
By facilitating her eligibility for government benefits, this House Trust would prevent the rapid depletion of her assets by the cost of care. It would also honor what likely is your mother’s desire to preserve her estate for her children and grandchildren, or perhaps even for her own use should she recover and be able to return home.
In our view there is nothing wrong in planning’s one’s affairs to qualify for government programs, so long as full disclosure is made at the time of application. To put it another way, public benefits planning on behalf of middle-class folks is akin to sophisticated tax planning in which the wealthy engage. Both impact the public treasury. To be sure, the impact of tax planning is greater by far.