Protecting the Homestead: Part 2

by Jerrold Bartholomew

Before the Deficit Reduction Act was signed in February of 2006, it was relatively easy for an elder law attorney or a well-informed layperson to set aside money to pay for the upkeep of a nursing home patient’s homestead. A simple contract could be created and assets transferred to a responsible relative who would pay for the utilities, taxes, insurance and maintenance of the nursing home patient’s home. It also used to be possible to gift a significant amount of money each month. Therefore one could simply give assets to another to keep up the home. These techniques were necessary because a person in a nursing home can generally have only $2,000.00 in cash or equivalent non-exempt assets and all but a small portion of income will go to the cost of care. Since such a small amount of money is dwarfed by property taxes alone, the policy allowing money to be set aside for homestead maintenance made sense for several reasons.

First of all, some people do return home, even after long stays in a nursing home. Second, there are significant tax benefits to waiting until one’s passing to transfer a homestead to a relative. But with the possibility of tax foreclosure or dissipation through neglect, a sale or significant financial hardship is difficult to avoid with the owner in a nursing home. Moreover, Medicaid policy considers the transfer of a homestead a divestment subject to penalty in most cases. Third, the sale of home in financial distress is a loss to an effected family, particularly in today’s troubled real estate market.

Today the rules are more complex and the preservation of a home requires careful planning and proper asset allocation. For reasons known only to Washington and Lansing, a nursing home patient’s homestead is gravely threatened even while the nursing home patient is alive.

There are basically two ways to handle this situation: one is an asset protection pre-plan. That obviously is not an option for everyone, but for anyone at or near retirement age, this should be a consideration. The second is an advanced crisis plan. By these means, a portion of assets can be preserved to pay property taxes and utilities on the nursing home patient’s home.

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