How We Recovered $240,000
Jane called because she was flat out of money and desperate. Dad had been in a nursing facility for almost 4 years now. He had spent down his money and Jane had paid the $11,000 per month expense after that, until she was tapped out of her home equity line of credit to the tune of $240,000. Dad owned a home, which Jane had always figured she would eventually sell and reimburse to herself the money she had advanced. She was panicked, however, after someone told her that she might not get that money back because Medicaid would “take the house”. She called us after a friend told her to speak with an elder law attorney.
Jane definitely had a problem. While Medicaid doesn’t “take” the home, when Dad starts to receive Medicaid benefits the State runs a tab, so to speak. That tab comes due when he dies, under what is called “estate recovery”, and the State will get paid first when the home is sold because Jane didn’t have a mortgage to protect her $240,000 loan to Dad. So each month that Dad receives Medicaid benefits is money that Jane will lose, because the house is only worth $250,000. I told Jane not to worry. I had a solution, but we had to work quickly before we filed a Medicaid application. Here’s what we did.
Jane had no problem documenting the payments on Dad’s behalf. The nursing facility provided us with a payment history as well. We first had Jane and Dad enter into a loan agreement backed by a mortgage which we recorded on Dad’s home. A realtor provided us with documentation showing that Jane had listed Dad’s home for sale for about a year and had to continually lower the asking price which was now $250,000. We needed this to establish the fair market value.
Jane then entered into a contract to purchase Dad’s home for $250,000. We represented Dad and Jane hired her own attorney. It had to be, what attorneys refer to as an “arm’s length transaction” with all the usual realty transfer fees and recording costs. Jane’s payment for the home was the $240,000 she paid to the nursing home plus Dad’s closing costs (which she paid).
Finally, we applied for Medicaid, disclosing all the above transactions. Medicaid definitely examined it closely. But we had the documentation to back everything up. This was not a case of Dad gifting Jane $250,000. Jane had paid full value for the home and Dad had used the money to pay for his care. In the end, however, I am proud to say that Medicaid approved our application and Jane did get back her $240,000. And the State can’t be unhappy either, since Dad used every last dollar for his care before reaching out for government benefits.
Jane was lucky but I don’t recommend waiting until she did to reach out for help. Had she handled the Medicaid application herself, she likely would have lost tens of thousands of dollars, and possibly all of the money she spent. And since Jane, herself, is 65, that’s money she’ll need for her own care needs in the not too distant future.