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The Home and Not Much Else (Part 3)

In this week’s post, I continue to discuss a common fact pattern we see in our office.  The case involves someone who needs long term care, doesn’t have enough to pay for it but does have a house.  As I explained last week, the available government benefit programs don’t always cover the entire cost of care. In particular, if you want to be cared for at home, there isn’t a program that is guaranteed to cover all of what you need.  

Tapping into the equity can fill that gap but it must be done carefully.  That’s because while the equity in your home is a non countable asset as long as you or your spouse is living it, once you draw out the equity in the form of cash by way of a mortgage and put it in your bank account, it becomes a countable asset.   That additional amount may then cause you to lose Medicaid benefits if the balance exceeds the countable asset limit. 

So how do you navigate through the process so that the mortgage amount supplements the Medicaid benefit but doesn’t cause you to lose it?  The type of mortgage is key.  Taking a lump sum and depositing it in your bank account won’t work as I have just explained.  Ideally you want a line of credit that allows you to draw on the line as needed with checks that are issued against the line.  If I write a check directly to a third party the funds never sit in my account so they never become countable.  The funds are actually coming directly from the mortgage lender to the third party vendor. 

Sometimes that option may not be available, meaning the lender will only deposit the funds to your account first.  This requires more coordination so as not to exceed the countable asset balance which as I said will cause the loss of benefits.

Most seniors who consider this strategy are not eligible for a traditional mortgage because they don’t have the income to qualify.  Instead, a reverse mortgage is the only option available.  While reverse mortgages can be a perfect fit for many, because the borrower does not make any payments back until the house is sold, interest continues to accrue“.  Unlike a traditional mortgage in which the balance goes down as time goes on (assuming you are making the monthly payments), the balance of a reverse mortgage goes up. While this is a great option for people who tell me their loved one is never going to a facility no matter what, sometimes things are out of our control.  In that case, moving to a facility may be needed and having at least some equity left to be able to pivot to another care arrangement will then be critical.