In an earlier blog post, I discussed planning steps you can take to protect your home if sometime in the future you were to need MassHealth covered long-term care. The four steps I described all need to be taken at least five years before you apply for MassHealth. But what do you do if you can't wait five years, if you or a loved one already needs assistance or the writing is on the wall?
First, don't panic. MassHealth may well have a claim against your house or your loved one's house, but it might not be as much as you fear, in large part because MassHealth pays less for care than facilities charge on the private market. For instance, let's assume your mother is in a nursing home that charges $12,000 a month privately. MassHealth may only pay $8,000 a month. In addition, your mother must contribute her income. If that is $3,000, than MassHealth's out-of-pocket cost will be $5,000 a month or $60,000 a year, which will also be its claim against the house. While this is a lot of money, it would take 10 years to completely use up the equity of a home with a market value of $600,000, much longer than almost anyone lives in a nursing home. MassHealth's claim for home care will almost certainly be less because its cost will be less.
Second, in many cases you can either reduce or totally avoid this claim, even without advance planning. Here's how:
- Rent out the house. Rental income will help defray expenses for maintaining the house and the net income will have to be contributed to the cost of care. This reduces MassHealth's cost and it's claim against the house. In our example above, if you rented out your mother's house and earned $2,000 a month after expeneses, this would reduce MassHealth's out-of-pocket costs from $5,000 to $3,000 a month, and its claim from $60,000 for a year of care to $36,000, substantially reducing estate recovery upon your mother's death.
- Transfer to a spouse. MassHealth's claim only applies to the estate of the person receiving benefits and there are no restrictions on transfers between spouses. So, if your mother is in a nursing home and your father is still living at home, it usually makes sense for your mother to transfer the house to your father. However, he also needs to sign a new will because it he dies before your mother, it won't help much if the house goes right back to her.
- Transfer to a caretaker child. If you or one of your siblings lived with your mother for at least two years before she moved to a nursing home and a doctor will attest that due to your assistance your mother was able to delay moving to the nursing home for two or more years, then you (or your sibling) can qualify for an exception to the usual five-year penalty for transferring the house. Your mother can deed it over to you (or your sibling) and since it won't be in her estate it won't be subject to claim when she dies. Be aware, however, that there may be adverse tax consequences to such a transfer, so before taking this step, consult with an experienced elder law attorney.
- Transfer to sibling with equity interest. While much less common than the caretaker child exception, MassHealth also exempts transfers to siblings who already have an equity interest in the home and who lived with the nursing home resident for at least a year before she moved to the nursing home. So, for instance, if your mother owned her home with her sister, and they lived together for at least a year before your mother moved to the nursing home, she could freely transfer the home to your aunt.
- Transfer to disabled child. If you or one of your siblings is disabled, as evidenced by receiving Supplemental Security Income or Social Security Disability Income, then your mother can transfer the house to your or to that sibling without penalty.
- Transfer to trust for disabled individual under age 65. In addition to being able to transfer the house to a disabled child, your mother can transfer it into trust exclusively for the benefit of anyone who is disabled and under the age of 65, whether or not that person is her child. This can include grandchildren and in-laws.
- Transfer to anyone, if not in a nursing home. The penalty for transferring assets only applies to MassHealth coverage of nursing home care, not to commuinity benefits. If your mother or other loved one is receiving care at home, she can avoid MassHealth's claim by transferring the house to anyone. However, this might not be advisable given that (1) MassHealth's claim is likely to be smaller in this case than for nursing home care, (2) this could cause problems if your mother were to need to move to a nursing home within five years, and (3) there could be adverse tax consequences.
- Hardship waiver. If one or more of the people who inherit the house are low income and live i the house, they may qualify for a hardship waiver from MassHealth's estate recovery claim. Unfortunately, MassHealth's requirements to qualify for this waiver are extremely (inordinately, in my opinion) restrictive, so if you do qualify make sure that you follow the hardship waiver rules very carefully.
A number of these possible steps can cause difficulties, especially since some involve transfers to one child when the parent may want her estate to pass equally to all of her children. Others have tax implications that can undercut their benefit. As a result, we strongly recommend consulting a qualified elder law attorney before embarking on any of these strategies.