Medicaid Planning
Topics Covered:
The Need for Planning
Medicare
Medicaid
Transfers
Trusts
Protection of the House
Spending Down
Immediate Annuities
Increased CSRA
Spousal Refusal
The Attorney's Role
Reverse Mortgages
The Need for Planning
One of the greatest fears of older Americans is that they may end up
in a nursing home. This not only means a great loss of personal
autonomy, but also a tremendous financial price. Depending on location
and level of care, nursing homes cost between $35,000 and $150,000 a
year.
Most people end up paying for nursing home care out of their savings
until they run out. Then they can qualify for Medicaid to pick up the
cost. The advantages of paying privately are that you are more likely
to gain entrance to a better quality facility and it eliminates or
postpones dealing with your state's welfare bureaucracy--an often
demeaning and time-consuming process. The disadvantage is that
it's expensive.
Careful planning, whether in advance or in response to an
unanticipated need for care, can help protect your estate, whether for
your spouse or for your children. This can be done by purchasing
long-term care insurance or by making sure you receive the benefits to
which you are entitled under the Medicare and Medicaid programs.
Veterans may also seek benefits from the Veterans Administration.
Medicare
Medicare Part A covers up to 100 days of "skilled nursing"
care per spell of illness. However, the definition of "skilled
nursing" and the other conditions for obtaining this coverage are
quite stringent, meaning that few nursing home residents receive the
full 100 days of coverage. As a result, Medicare pays for only about 9
percent of nursing home care in the United States. Check out the
Medicare section of this site for tips on making sure you receive
the nursing care benefits to which you are entitled.
Medicaid
For all practical purposes, in the United States the only
"insurance" plan for long-term institutional care is
Medicaid. Lacking access to alternatives such as paying privately or
Medicare, most people pay out of their own pockets for long-term care
until they become eligible for Medicaid. Although their names are
confusingly alike, Medicaid and Medicare are quite different programs.
For one thing, all retirees who receive Social Security benefits also
receive Medicare as their health insurance. Medicare is an
"entitlement" program. Medicaid, on the other hand, is a
form of welfare -- or at least that's how it began. So to be
eligible for Medicaid, you must become "impoverished" under
the program's guidelines.
Also, unlike Medicare, which is totally federal, Medicaid is a joint
federal-state program. Each state operates its own Medicaid system,
but this system must conform to federal guidelines in order for the
state to receive federal money, which pays for about half the
state's Medicaid costs. (The state picks up the rest of the tab.)
This complicates matters, since the Medicaid eligibility rules are
somewhat different from state to state, and they keep changing. (The
states also sometimes have their own names for the program, such as
"MediCal" in California and "MassHealth" in
Massachusetts.) Both the federal government and most state governments
seem to be continually tinkering with the eligibility requirements and
restrictions. The rules for gaining eligibility to the program are
explained in detail in the Medicaid section of this site. But to be
certain of your rights, consult an expert. He or she can guide you
through the complicated rules of the different programs and help you
plan ahead.
Those who are not in immediate need of long-term care may have the
luxury of distributing or protecting their assets in advance. This
way, when they do need long-term care, they will quickly qualify for
Medicaid benefits. Giving general rules for so-called "Medicaid
planning" is difficult because every client's case is
different. Some have more savings or income than others. Some are
married, others are single. Some have family support, others do not.
Some own their own homes, some rent. Still, a number of basic
strategies and tools are typically used in Medicaid planning. These
are described below.
(Is Medicaid planning ethical? For ElderLawAnswers.com's opinion
on this,
click here.)
Transfers
NOTE: The Medicaid transfer rules are about to change. You may want to
consult with a qualified elder law attorney before they do.
Click here for more information.
As explained in the Medicaid section of this site (see
The Transfer Penalty), Congress has established a period of
ineligibility for Medicaid for those who transfer assets. This period
of ineligibility is determined by dividing the amount transferred by
what Medicaid determines to be the average private pay cost of a
nursing home in your state. However, state Medicaid officials will
look only at transfers made within the 36 months prior to the Medicaid
application (or 60 months if the transfer was made to certain kinds of
trusts). Thus, if you can plan ahead and make transfers well in
advance of needing Medicaid (three to five years, depending on where
you are transferring the money), the transfers will not affect your
Medicaid eligibility.
Even if you are not in a situation where you can plan ahead, you can
generally protect about half of your savings by giving them away.
Often referred to as "half a loaf," it works this way:
before applying for Medicaid, the prospective applicant transfers half
of his or her resources, thus creating a Medicaid penalty period. The
prospective applicant, who is often already in a nursing home, then
uses the other half of his or her resources to pay for care while
waiting out the penalty period. After the penalty period has expired,
the individual can apply for Medicaid coverage.
Example:
Mrs. Jones has savings of $48,000. The average private-pay nursing
home rate in her state is $4,000 a month. When she enters a nursing
home, she transfers $24,000 of her savings to her son. This creates a
six-month period of Medicaid ineligibility ($24,000 ÷ $4,000 =
6). During these six months, she uses the other half of her savings to
pay privately for her nursing home care. After the six-month Medicaid
penalty period had elapsed, Mrs. Jones will have spent down her
remaining assets and be able to qualify for Medicaid coverage.
In many cases, dividing your savings exactly in half may mean that you
would actually transfer too much or too little, depending on variables
like your income and the nursing home's actual costs. A qualified
elder law attorney can advise you on the optimum transfer amount.
Any transfer strategy must take into account the nursing home
resident's income and all of her expenses, including the cost of
the nursing home. Also, be very, very careful before making transfers.
If you give money to your children, it belongs to them and you should
not rely on them to hold the money for your benefit. However
well-intentioned they may be, your children could lose the funds due
to bankruptcy, divorce or lawsuit. Any of these occurrences would
jeopardize the savings you spent a lifetime accumulating. Do not give
away your savings unless you are ready for these risks.
In addition, be aware that the fact that your children are holding
your funds in their names could jeopardize your grandchildren's
eligibility for financial aid in college. Transfers can also have bad
tax consequences for your children. This is especially true of assets
that have appreciated in value, such as real estate and stocks. If you
give these to your children, they will not get the tax advantages they
would get if they were to receive them through your estate. The result
is that when they sell the property they will have to pay a much
higher tax on capital gains than they would have if they had inherited
it.
Transfers should be made carefully, with an understanding of all the
consequences. In any case, as a rule, never transfer assets for
Medicaid planning unless you keep enough funds in your name to (1) pay
for any care needs you may have during the resulting period of
ineligibility for Medicaid; and (2) feel comfortable and have
sufficient resources to maintain your present lifestyle.
Remember:
You do not have to save your estate for your children. The bumper
sticker that reads "I'm spending my children's
inheritance" is a perfectly appropriate approach to estate and
Medicaid planning.
Even though in most cases a nursing home resident may receive Medicaid
while owning a home, if she is married she should transfer the home to
the community spouse (assuming the nursing home resident is both
willing and competent). This gives the community spouse control over
the asset and allows him or her to sell it after the nursing home
spouse becomes eligible for Medicaid. In addition, the community
spouse should change his or her will to bypass the nursing home
spouse. Otherwise, at his or her death, the home and other assets of
the community spouse will go to the nursing home spouse and have to be
spent down.
Permitted Transfers
While most transfers are penalized with a period of Medicaid
ineligibility of up to five years, certain transfers are exempt from
this penalty. Even after entering a nursing home, you may transfer any
asset to the following individuals without having to wait out a period
of Medicaid ineligibility:
-
-
Your spouse (but this may not help you become eligible since the
same limit on both spouse's assets will apply)
-
Your child who is blind or permanently disabled.
-
Into trust for the sole benefit of anyone under age 65 and
permanently disabled.
In addition, you may transfer your home to the following individuals
(as well as to those listed above):
-
-
Your child who is under age 21.
-
Your child who has lived in your home for at least two years prior
to your moving to a nursing home and who provided you with care
that allowed you to stay at home during that time.
-
A sibling who already has an equity interest in the house and who
lived there for at least a year before you moved to a nursing home.
Trusts
The problem with transferring assets is that you have given them away.
You no longer control them, and even a trusted child or other relative
may lose them. A safer approach is to put them in a living (or
"inter vivos") trust. A trust is a legal entity under which
one person -- the "trustee" -- holds legal title to property
for the benefit of others -- the "beneficiaries." The
trustee must follow the rules provided in the trust instrument.
Whether trust assets are counted against Medicaid's resource
limits depends on the terms of the trust and who created it.
A "revocable" trust is one that may be changed or rescinded
by the person who created it. Medicaid considers the principal of such
trusts (that is, the funds that make up the trust) to be assets that
are countable in determining Medicaid eligibility. Thus, revocable
trusts are of no use in Medicaid planning.
Income-only Trusts
An "irrevocable" trust, on the other hand, is one that
cannot be changed after it has been created. In most cases, this type
of trust is drafted so that the income is payable to you (the person
establishing the trust, called the "grantor") for life, and
the principal cannot be touched during your life. At your death the
principal is paid to your heirs. This way, the funds in the trust are
protected and you can use the income for your living expenses. For
Medicaid purposes, the principal in such trusts is not counted as a
resource, provided the trustee cannot pay it to you or for your
benefit. However, if you do move to a nursing home, the trust income
will have to go to the nursing home.
You should be aware of the drawbacks to such an arrangement. It is
very rigid, so you cannot gain access to the trust funds even if you
need them for some other purpose. For this reason, you should always
leave an ample cushion of ready funds outside the trust.
You may also choose to place property in a trust from which even
payments of income to you or your spouse cannot be made. Instead, the
trust may be set up for the benefit of your children, or others. These
beneficiaries may, at their discretion, return the favor by using the
property for your benefit if necessary. However, there is no legal
requirement that they do so.
One advantage of these trusts is that if they contain property that
has increased in value, such as real estate or stock, you (the
grantor) can retain a "special testamentary power of
appointment" so that the beneficiaries receive the property with
a step-up in basis at your death. This will also prevent the need to
file a gift tax return upon the funding of the trust.
Remember, funding an irrevocable trust can cause you to be ineligible
for Medicaid for up to five years, depending on the value of what you
place in the trust. Transfers to individuals have a maximum transfer
penalty of only three years.
Testamentary Trusts
Testamentary trusts are trusts created under a will. The Medicaid
rules provide a special "safe harbor" for testamentary
trusts created by a deceased spouse for the benefit of a surviving
spouse. The assets of these trusts are treated as available to the
Medicaid applicant only to the extent that the trustee has an
obligation to pay for the applicant's support. If payments are
solely at the trustee's discretion, they are considered
unavailable.
Therefore, these testamentary trusts can provide an important
mechanism for community spouses to leave funds for their surviving
institutionalized husband or wife that can be used to pay for services
that are not covered by Medicaid. These may include extra therapy,
special equipment, evaluation by medical specialists or others, legal
fees, visits by family members, or transfers to another nursing home
if that became necessary. But remember that if you create a trust for
yourself or your spouse during life (i.e., not a testamentary trust),
the trust funds are considered available if the trustee has the
ability to use them for you or your spouse.
Supplemental Needs Trusts
The Medicaid rules also have certain exceptions for transfers for the
sole benefit of disabled people under age 65. Even after moving to a
nursing home, if you have a child, other relative, or even a friend
who is under age 65 and disabled, you can transfer assets into a trust
for his or her benefit without incurring any period of ineligibility.
If these trusts are properly structured, the funds in them will not be
considered to belong to the beneficiary in determining his or her own
Medicaid eligibility. The only drawback to supplemental needs trusts
(also called "special needs trusts") is that after the
disabled individual dies, the state must be reimbursed for any
Medicaid funds spent on behalf of the disabled person.
Supplemental needs trusts are usually created by a parent or other
family member for a disabled child (even though the child may be an
adult). Or, the disabled individual can create the trust with his or
her own money, provided the trust meets certain requirements. These
latter trusts are sometimes called "(d)(4)(A)" trusts, which
refers to the authorizing statute.
For more on supplemental needs trusts,
click here.
For more on trusts in general, see the
Estate Planning section of this site.
Protection of the House
As explained in the
Medicaid section of this site, after a Medicaid recipient dies,
the state must attempt to recoup from his or her estate whatever
benefits it paid for the recipient's care. This is called
"estate recovery." For many people, setting up a "life
estate" is the most simple and appropriate alternative for
protecting the home from estate recovery. A life estate is a form of
joint ownership of property between two or more people. They each have
an ownership interest in the property, but for different periods of
time. The person holding the life estate possesses the property
currently and for the rest of his or her life. The other owner has a
future or "remainder" interest in the property. He or she
has a current ownership interest but cannot take possession until the
end of the life estate, which occurs at the death of the life estate
holder. As with a transfer to a trust, the deed into a life estate can
trigger a Medicaid ineligibility period.
Example:
Jane gives a remainder interest in her house to her children, George
and Mary, while retaining a life interest for herself. She carries
this out through a simple deed. Thereafter, Jane, the life estate
holder, has the right to live in the property or rent it out,
collecting the rents for herself. On the other hand, she is
responsible for the costs of maintenance and taxes on the property. In
addition, the property cannot be sold to a third party without the
cooperation of George and Mary, the remainder interest holders.
When Jane dies, the house will not go through probate, since at her
death the ownership will pass automatically to the holders of the
remainder interest, George and Mary. Although the property will not be
included in Jane's probate estate, it will be included in
her taxable estate. The downside of this is that depending on
the size of the estate and the state's estate tax threshold, the
property may be subject to estate taxation. The upside is that this
can mean a significant reduction in the tax on capital gains when
George and Mary sell the property because they will receive a
"step up" in the property's basis.
Life estates are created simply by executing a deed conveying the
remainder interest to another while retaining a life interest, as Jane
did in this example. Once the house passes to George and Mary, the
state cannot recover against it for any Medicaid expenses Jane may
have incurred.
Another method of protecting the home from estate recovery is to
transfer it to an irrevocable trust. Trusts provide more flexibility
than life estates but are somewhat more complicated. Once the house is
in the irrevocable trust, it cannot be taken out again. Although it
can be sold, the proceeds must remain in the trust. This can protect
more of the value of the house if it is sold. On the other hand, since
the entire house is transferred to the trust, rather than a partial
ownership, the resulting period of ineligibility for Medicaid is
longer -- up to five years.
Spending Down
Applicants for Medicaid and their spouses may protect savings by
spending them on noncountable assets. This may include:
-
paying off a mortgage,
-
making repairs to a home,
-
replacing an old automobile,
-
updating home furnishings,
-
paying for more care at home, or even
-
buying a new home.
In the case of married couples, it is often important that any
spend-down steps be taken only after the unhealthy spouse moves to a
nursing home if this would affect the community spouse's resource
allowance.
Immediate Annuities
Immediate annuities can be ideal planning tools for spouses of nursing
home residents. For single individuals, they are less useful. An
immediate annuity, in its simplest form, is a contract with an
insurance company under which the consumer pays a certain amount of
money to the company and the company sends the consumer a monthly
check for the rest of his or her life. In most states the purchase of
an annuity is not considered to be a transfer for purposes of
eligibility for Medicaid, but is instead the purchase of an
investment. It transforms otherwise countable assets into a
non-countable income stream. As long as the income is in the name of
the community spouse, it's not a problem.
Example:
Mrs. Jones, the community spouse, lives in a state where the most
money she can keep for herself and still have Mr. Jones, who is in a
nursing home, qualify for Medicaid (her maximum resource allowance) is
$99,540 (in 2006). However, Mrs. Jones has $208,280 in countable
assets. She can take the difference of $111,000 ($212,540 minus the
sum of $99,540 and the $2,000 Medicaid recipients are allowed to
retain) and purchase an annuity, making her husband in the nursing
home immediately eligible for Medicaid. She would continue to receive
the annuity check each month for the rest of her life. (In certain
states, following the death of the community spouse the state may be
able to recover what's left of the annuity as reimbursement for
Medicaid expenditures to the institutionalized spouse; see Estate
Recovery under the Medicaid section of this site.)
Except in the case of clients with substantial savings, the purchase
of an annuity should wait until the unhealthy spouse moves to a
nursing home. In addition, if the annuity has a term certain, the term
must be shorter than the life expectancy of the healthy spouse.
Finally, where the healthy spouse has a relatively low income, the
annuity may provide little benefit since it will only supplant income
that he or she would be entitled to from the unhealthy spouse.
Annuities are of less benefit for a single individual in a nursing
home because he or she would have to pay the monthly income from the
annuity to the nursing home.
In short, immediate annuities are a very powerful tool in the right
circumstances, but of little or no use in other cases. They must also
be distinguished from deferred annuities, which have no Medicaid
planning purpose.
(The use of immediate annuities as a Medicaid planning tool is under
attack in some states. Be sure to consult with a qualified elder law
attorney in your state before pursuing the strategy described above.)
Increased CSRA
In some states, community spouses whose own income is less than their
MMMNA (see discussion under
Medicaid section of site) have an alternative to receiving the
shortfall from the income of the nursing home spouse. These community
spouses can petition the state Medicaid agency for an increase in
their standard resource allowances (called the community spouse
resource allowance, or CSRA) so that the additional funds can be
invested in order to generate income to make up the shortfall in the
MMMNA. This often permits the community spouse to retain a substantial
level of savings above the state's standard resource allowance,
while maintaining eligibility for the nursing home spouse.
Example:
Mrs. Henderson's husband moves to a nursing home. Prior to his
illness, the Hendersons have been living on his income of $1,500 a
month, Mrs. Henderson's income of $500 a month and income from
their investments, which total $220,100. On applying for Medicaid to
cover her husband's nursing home care, the state Medicaid agency
informs Mrs. Henderson that her MMMNA is $1,700 and that the
Hendersons must spend down their savings to $97,100 -- $2,000 for Mr.
Henderson and $95,100 for Mrs. Henderson. Once they have spent down to
$99,540 (in 2006), Mrs. Henderson will be entitled to $1,200 of her
husband's monthly income in order to make up the difference
between her own income of $500 a month and her MMMNA of $1,700.
Mrs. Henderson decides to appeal this determination, arguing that she
would prefer to keep enough funds invested to generate the difference
between her income and her MMMNA rather than receive $1,200 a month
from her husband. On appeal, the hearing officer estimates that she
should receive $200 a month from her standard $99,540 (in 2006)
resource allowance, bringing her income up to $700 a month and her
shortfall down to $1,000 a month. To generate $1,000 a month at an
interest rate of 6 percent, Mrs. Henderson would have to have $200,000
invested. Since $200,000 plus $99,540 exceeds Mr. and Mrs.
Henderson's savings of $220,100, Mr. Henderson is determined to be
eligible for Medicaid.
Before pursuing this increased resource allowance strategy you need to
check on how it is applied in your state. Some states permit this
approach only if both spouses' combined income falls below the
community spouse's MMMNA.
Spousal Refusal
Federal Medicaid law states that the community spouse can keep all of
his or her assets by simply refusing to support the institutionalized
spouse. This portion of the law, known as "just say no" or
"spousal refusal," is generally not used except in New York,
where the state has adopted the federal law in this area. In New York,
if a spouse refuses to contribute his or her income or resources
toward the cost of care of a Medicaid applicant, the Medicaid agency
is required to determine the eligibility of the nursing home spouse
based solely on his income and resources, as if the community spouse
did not exist.
After awarding Medicaid benefits to the institutionalized spouse, the
Medicaid agency then has the option of beginning a legal proceeding to
force the community spouse to support the institutionalized spouse.
However, this is not always done, and when such cases do go to court,
courts in New York generally allow the community spouse to keep enough
resources to maintain her former standard of living. If the Medicaid
agency chooses not to sue the community spouse for support, it can
file a claim for reimbursement against the community spouse's
estate following his or her death.
The "just say no" strategy sometimes is used in states other
than New York in second-marriage situations, where the healthy spouse
truly refuses to support the nursing home spouse.
The Attorney's Role
Do you need an attorney for even "simple" Medicaid planning?
This depends on your situation, but in most cases, the prudent answer
would be "yes." The social worker at your mother's
nursing home assigned to assist in preparing a Medicaid application
for your mother knows a lot about the program, but maybe not the
particular rule that applies in your case or the newest changes in the
law. In addition, by the time you're applying for Medicaid, you
may have missed out on significant planning opportunities.
The best bet is to consult with a qualified professional who can
advise you on the entire situation. At the very least, the price of
the consultation should purchase some peace of mind. And what you
learn can mean significant financial savings or better care for you or
your loved one. As described above, this may involve the use of
trusts, transfers of assets, purchase of annuities or increased income
and resource allowances for the healthy spouse.
If you are going to consult with a qualified professional, the sooner
the better. If you wait, it may be too late to take some steps
available to preserve your assets.
Reverse Mortgages
Under our “system” of paying for long-term care, you may
be able to qualify for Medicaid to pay for nursing home care, but in
most states there’s little public assistance for home care. Most
people want to stay at home as long as possible, but few can afford
the high cost of home care for very long. One solution is to tap into
the equity built up in your home.
If you own a home and are at least 62 years old, you may be able to
quickly get money to pay for long-term care (or anything else) by
taking out a reverse mortgage. Reverse mortgages, financial
arrangements designed specifically for older homeowners, are a way of
borrowing that transforms the equity in a home into liquid cash
without having to either move or make regular loan repayments. They
permit house-rich but cash-poor elders to use their housing equity to,
for example, pay for home care while they remain in the home, or for
nursing home care later on. The loans do not have to be repaid until
the last surviving borrower dies, sells the home or permanently moves
out.
In a reverse mortgage, the homeowner receives a sum of money from the
lender, usually a bank, based largely on the value of the house, the
age of the borrower, and current interest rates. For example, a
70-year-old borrower with a $200,000 house in Westchester County, New
York, would be able to receive a maximum loan of $103,483 (based on
2005 figures; see chart below). The lower the interest rate and the
older the borrower, the more that can be borrowed.
Source: AARP
|
The largest amount of cash that may be available
through the HECM reverse mortgage program for three
homes in Westchester County, NY:
|
|
Value of home:
|
$100,000
|
$200,000
|
$300,000
|
|
Age of borrower
|
|
65
|
$ 47,979
|
$ 104,029
|
$ 160,079
|
|
70
|
52,811
|
113,461
|
174,111
|
|
75
|
58,030
|
123,580
|
189,130
|
|
80
|
63,466
|
134,016
|
204,566
|
|
85
|
68,966
|
144,416
|
219,866
|
|
90
|
74,288
|
154,238
|
234,188
|
Homeowners can get the money in one of three ways (or in any
combination of the three): in a lump sum, as a line of credit that can
be drawn on at the borrower’s option, or in a series of regular
payments, called a “reverse annuity mortgage”. The most
popular choice is the line of credit because it allows a borrower to
decide when he or she needs the money and how much. Moreover, no
interest is charged on the untapped balance of the loan.
Although it is often assumed that an elderly person would want to use
the funds from a reverse mortgage loan for health care, there are no
restrictions--the funds can be used in any way. For instance, the loan
could be used to pay back taxes, for house repairs, or to retrofit a
home to make it handicapped-accessible.
Borrowers who take out a reverse mortgage still own their home. What
is owed to the lender -- and usually paid by the borrower’s
estate -- is the money ultimately received over the course of the
loan, plus interest. In addition, the repayment amount cannot exceed
the value of the borrower’s home at the time the loan is repaid.
All borrowers must be at least 62 years of age to qualify for most
reverse mortgages. In addition, a reverse mortgage cannot be taken out
if there is prior debt against the home. Thus, either the old mortgage
must be paid off before taking out a reverse mortgage or some of the
proceeds from the reverse mortgage used to retire the old debt.
Reverse mortgages are somewhat underutilized now -- only an estimated
60,000 to 75,000 of the loans have been made. But financial
institutions, sensing an opportunity as the population ages and people
live longer lives, are expanding their reverse mortgage programs.
The most widely available reverse mortgage product -- and the source
of the largest cash advances -- is the Home Equity Conversion Mortgage
(HECM), the only reverse mortgage program insured by the Federal
Housing Administration (FHA). However, the FHA sets a ceiling on the
amount that can be borrowed against a single-family house, which is
determined on a county-by-county basis. In Westchester County, New
York, for example, that ceiling is $260,018 (in 2005). High-end
borrowers must look to the proprietary reverse mortgage market, which
imposes no loan limits.
Is a Reverse Mortgage Right for You?
While reverse mortgages look like no-lose propositions on the surface,
they also have some significant downsides. First, the closing costs
for these loans are about double those for conventional mortgages.
Closing costs on a reverse mortgage for the $200,000 home described
above would be more than $10,000. These costs can be financed by the
loan itself, but that reduces the money available to you.
Reverse mortgage payments also may affect your eligibility for
government benefits, including Medicaid. Generally, these payments
will not be counted as income as long as they are spent within the
same month that they are received. If the funds are not spent,
however, they could accumulate and push your resources over the
allowable limits for Medicaid or SSI eligibility. In addition,
payments from reverse annuity mortgages may be counted as
income for purposes of Medicaid and SSI whether or not they are
spent within the month they are received. This shouldn’t be
treated as income, since it simply involves withdrawing equity from
one’s home, but the state may view it differently since the
funds come in a regular monthly check. In any case, you should consult
with an elder lawyer in your state if you have any concern about how a
reverse mortgage will affect your eligibility for federal benefits.
Also, bear in mind that if your major objective is to safeguard an
inheritance for your children, a reverse mortgage may not be a good
idea. As soon as the elderly person (or the survivor of an elderly
couple) dies, it will be necessary to sell the home and much -- if not
all -- of the sales proceeds will have to be paid to the lender. But
if you have a pressing need for additional income and have no close
heirs, or if you do not intend to benefit your children or your
children don’t particularly want to inherit the house, a reverse
mortgage can be a way to supplement income, perhaps without
jeopardizing Medicaid eligibility.
Reverse mortgages are complex products and borrowers are advised to
acquaint themselves with the different options available and then
carefully compare competing loan offerings. Following are two
outstanding Web sites to get you started in that process:
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You can learn the basics about reverse mortgages from the
AARP’s excellent reverse mortgage Web site. The site includes
a calculator for estimating the loan for which a borrower would be
eligible. Go to: www.aarp.org/revmort
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For more details, background information, and supplementary
materials, visit the National Center for Home Equity
Conversion’s site at www.reverse.org
In addition, the names of FHA-insured lenders are available from the
Federal National Mortgage Association (Fannie Mae), (800) 7-FANNIE.
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