What happens to my parents' house if they go into a nursing home?

According to the Department of Health and Human Services, most people will need some form of long-term care in their lifetime, which can be extremely expensive. This leads many adult children to wonder, 'What happens to my parents' house if they go into a nursing home?' The answer depends heavily on how the care is paid for, whether through private funds or a government program like Medicaid, and if legal planning was done in advance.

Quick Summary

The house may be subject to asset recovery if Medicaid is used to pay for long-term care. While the home is typically exempt during the recipient's lifetime, states can seek reimbursement from the estate after death. Legal strategies like trusts and life estates, initiated before the Medicaid look-back period, can protect the home.

Key Points

• Medicaid Estate Recovery is the threat: If your parents use Medicaid to pay for nursing home care, the state can later file a claim against their estate—including the house—to recover costs.

• The home is often exempt during their lifetime: Medicaid generally does not force the sale of a home while the recipient or a spouse is still living there, although a lien may be placed on the property.

• Advance planning is essential: Strategies like creating an irrevocable trust or a life estate deed must be completed outside of the Medicaid 5-year look-back period to be effective.

• A 'caregiver child' may have an exemption: In certain circumstances, an adult child who provided care for at least two years can receive the house without it affecting Medicaid eligibility.

• Spousal protections exist: A surviving spouse is completely protected from Medicaid estate recovery, and the state cannot force the sale of the home while they live there.

• Professional legal advice is critical: State laws and Medicaid rules vary, so consulting an elder law attorney is the best way to understand and implement a personalized protection strategy.

• Undue hardship waivers are an option: In cases where estate recovery would cause significant financial distress for heirs, an undue hardship waiver may be requested from the state.

Medicaid's Role and the Estate Recovery Program

Medicaid is a joint federal and state program that helps cover long-term care costs for individuals with limited income and assets. If your parents rely on Medicaid to pay for their nursing home care, their house could be at risk. This risk arises from the Medicaid Estate Recovery Program (MERP), which all states are required to implement.

Under MERP, after a Medicaid recipient's death, the state can file a claim against their estate to recover the costs of benefits paid. For many seniors, the house is the most valuable asset in their estate, making it the primary target for recovery. However, the program cannot take the home while the recipient or certain family members, like a spouse, still live there.

Protecting the Home from Medicaid Estate Recovery

While the prospect of Medicaid taking the house can be alarming, several legal strategies can be employed to protect the home. The key to most of these is advanced planning, specifically anticipating Medicaid's five-year "look-back" period. This rule reviews all financial transactions, including asset transfers for less than fair market value, that occurred in the 60 months before the Medicaid application. Improper transfers during this time can result in a penalty period of ineligibility for benefits.

Legal Tools for Asset Protection

• Irrevocable Trust: This is a common and powerful tool for asset protection. Once the home is transferred into an irrevocable trust, it is no longer considered a countable asset for Medicaid eligibility. The parents lose direct control over the asset, but the trust's terms dictate its use and eventual distribution to beneficiaries. For this to be successful, the transfer must occur outside the five-year look-back period.
• Life Estate Deed: This legal arrangement transfers ownership of the home to the children (known as the "remaindermen") while allowing the parents to retain the right to live there for the rest of their lives. When the parents pass away, the home bypasses probate and goes directly to the children, protecting it from estate recovery. Like an irrevocable trust, a life estate deed is subject to the five-year look-back rule.
• Caregiver Child Exemption: This exemption allows for a penalty-free transfer of the home to an adult child who lived with the parent for at least two years immediately before the parent's admission to a nursing home. The child must have provided a level of care that allowed the parent to avoid institutional care during that time.

Spousal Protections and Hardship Waivers

Federal law protects the homes of married couples when one spouse enters a nursing home and applies for Medicaid. The state is prohibited from seeking recovery against the home as long as the healthy spouse, known as the "community spouse," continues to live there. This protection ensures the surviving spouse is not forced from their home. However, some states may attempt recovery from the community spouse's estate after their death.

Another option is the undue hardship waiver, available in every state. Heirs can apply for this waiver if recovering the estate would cause them significant financial distress, such as leaving them homeless or requiring them to rely on state assistance. Each state has its own criteria, but these waivers can provide a path to protect the home in specific, dire circumstances.

Comparison of Home Protection Strategies

Feature	Irrevocable Trust	Life Estate Deed	Caregiver Child Exemption
Grantor's Control	Grantor relinquishes control; managed by a trustee.	Grantor retains the right to live in the home.	Parents transfer full ownership to the child.
Medicaid Look-Back	Subject to the 5-year look-back period.	Subject to the 5-year look-back period.	Exempts a specific transfer from the look-back.
Heir's Ownership	Property is owned by the trust; heirs are beneficiaries.	Heirs become owners immediately, but right of possession is delayed.	Child becomes the sole owner of the property.
Risk of Creditors	Assets protected from the creditors of both parents and heirs.	Vulnerable to the heir's creditors.	Vulnerable to the heir's creditors.
Tax Implications	Can offer capital gains tax benefits for heirs upon sale.	Heirs may receive a stepped-up basis for capital gains.	Potential capital gains tax for the child if sold quickly.
Complexity	High; requires drafting a legal document and appointing a trustee.	Moderate; involves updating the property deed.	Moderate; requires extensive documentation and adherence to rules.

What to Do Before It's Too Late

Proactive planning is crucial. If your parents are healthy, it's the ideal time to discuss their long-term care wishes and financial situation. Waiting until a crisis occurs limits options significantly due to Medicaid's look-back period. The following steps are recommended:

1. Start the Conversation Early: Talk with your parents about their preferences for long-term care and their financial assets. Gather information on their finances, including bank accounts, investments, and property deeds.
2. Consult an Elder Law Attorney: State laws and Medicaid rules are complex and constantly evolving. An elder law attorney can provide legal advice tailored to your family's specific circumstances and help set up the appropriate legal protections.
3. Review Asset Titling: Examine how the house and other assets are titled. Joint ownership, trusts, and other titling methods can impact how assets are treated during the Medicaid application process and estate recovery.
4. Consider All Options: A comprehensive plan may involve more than just protecting the house. Other tools, such as long-term care insurance or Medicaid-compliant annuities, may be part of the solution.

Conclusion

What happens to your parents' house if they go into a nursing home is not a simple question with a single answer. It depends on how their care is funded and what, if any, advance planning was done. While Medicaid can seek reimbursement for long-term care costs from a deceased person's estate, there are protections in place for spouses and specific situations. By understanding the Medicaid Estate Recovery Program and exploring legal strategies like irrevocable trusts and life estate deeds, families can take steps to safeguard their assets. The most important action is to start planning early and consult with a qualified elder law attorney to navigate this complex legal landscape effectively.

Frequently Asked Questions

Can a nursing home take my parents' house directly?

No, a nursing home cannot take the house directly. The nursing home bills are paid either privately or through a government program like Medicaid. If Medicaid pays, the state's Estate Recovery Program can later place a claim on the house, not the nursing home itself.

What is the Medicaid look-back period?

The look-back period is a five-year (or 60-month) window before a person applies for Medicaid. The state reviews all financial transactions, and any assets transferred for less than fair market value during this time can result in a penalty period of Medicaid ineligibility.

Is the house always at risk with Medicaid estate recovery?

No, there are several exceptions. The state cannot file a claim or force the sale of the home if a surviving spouse, a minor child, or a blind or disabled child of any age lives there.

How does an irrevocable trust protect the home?

An irrevocable trust protects the home by removing it from your parents' ownership. As long as the home was placed in the trust more than five years before applying for Medicaid, it is not considered a countable asset and is protected from estate recovery.

What is a life estate, and does it protect the home?

A life estate is a legal tool where your parents transfer ownership of the home to their children while retaining the right to live there for life. The home is protected from estate recovery as it bypasses probate, but the transfer is still subject to the five-year look-back period.

How does the caregiver child exemption work?

If an adult child lived with their parents and provided care for at least two years immediately before the parent's admission to a nursing home, the home can be transferred to that child without incurring a Medicaid penalty.

When should my parents start planning to protect their assets?

The best time to start planning is as early as possible, ideally while your parents are still healthy. This allows sufficient time to navigate the five-year look-back period and implement asset protection strategies effectively.