This is a case of a little bit of information being a dangerous thing. Mom transferred her home to Susan 4 years ago. Mother and daughter had been living in the home for years. “Since I am living in the home isn’t it an exempt asset,” Susan asked. “Yes, it is,” I told her, “but that doesn’t mean Mom can transfer it to you.”
What Susan did is confuse the rules on exempt assets with the rules on transferring assets. If Mom needs nursing home care and applies for Medicaid, the State will not force the sale of the home if Susan has been, and continues to, live in it. In other words, it won’t require the sale proceeds to be spent on Mom’s care before it will approve her Medicaid application.
Keep in mind that if Susan lives there, she can’t use any of Mom’s income to pay for taxes, insurance and upkeep. That income must go to the nursing home. Susan must pay the expenses herself, but she can continue to live there. After Mom passes away the State will place a lien on the home to recoup the benefits it paid out during Mom’s life, but Susan can continue to live there (assuming she is the person who inherits the home from Mom) and the State will wait until the home is sold to be paid back.
Now, here’s where Susan made her mistake. She figured that if the home is exempt as long as she is living there, Mom can transfer ownership to her and still qualify for Medicaid at any point in time. That is incorrect. Transferring an exempt asset is still subject to the 5 year lookback and a potential Medicaid penalty.
If Mom’s house is worth $400,000, the transfer to Susan results in a potential penalty of 52.5 months. This means that if she applies for Medicaid now, 4 years after the transfer, she will be ineligible for Medicaid for 52.5 months. “Are there any exceptions to this rule,” Susan asked.
“There are a few,” I told her. Next week I’ll share with you what they are.