If a person receives Medicaid, the state can recover from the person’s estate, including a home that the person owned. Note, this is for Medicaid, NOT Medicare. If you are added to the title of the property and within 5 years either of your grandparents needs to apply for Medicaid, the transfer to you of partial ownership of the house will be considered a divestment. So, yes, this transaction with the house needs to be evaluated in terms of your grandparents’ long-term-care and estate planning as well as in terms of your financial aid eligibility.
Okay, so what if we did this. We keep my name off of the mortgage and change the living will to leave the house solely to me. Then, when that sad, tragic day comes, I get the stepped-up basis and can resume the mortgage. With this plan, Medicare can not come back and confiscate anything?
Maybe the grandparents want her to have ownership of this house now…to avoid that five year look back. It’s possible they are planning ahead for themselves.
If the home is in their names, and they have any debts…the home could need to be sold upon their death if it is part of their estate.
Maybe your grandparents need to talk to a lawyer who specializes in elder law to see how to reserve their assets, and estate properly.
The state can do estate recovery on the house if any of the owners receive MEDICAID. (I apologize for the all caps, but I’m emphasizing this because there is a big difference between Medicare and Medicaid.) Example: grandparent (GP) 1 ends up on Medicaid, for example for nursing home care. After GP 1 dies, if GP 2 is still living in the house, GP 2 can stay in the house until his or her death. But after GP 2’s death, the state can recover Medicaid it has paid for GP 1 from the sale of the house.
So it might make sense for you to take over some ownership of the house now, if neither GP needs Medicaid for at least five years from now.
But this is not a plan I would make without the assistance of an estate planning lawyer, because this stuff is really complicated.
No, the mortgage is a loan security document. They do not change any terms of the mortgage once it is recorded because then the mortgage has to be refiled and the creditor loses its position. It would require a refinancing. The OP is correct. What could be done is for the mortgage to be refinanced in 4 or 5 years to change ownership. The OP and grandparents don’t want to do this because they want to refinance once, now. It is expensive to refinance. The deed could be quit claimed to the grandchild in a few years, but that’s a dangerous practice because the bank can call the loan due. Banks don’t like you transferring part of the asset to another owner. There are some specific times this can be done (death) but the grandparents may not want to die just to make a transfer possible.
Most mortgages between unmarried people are not usually held as joint tenants but as tenants in common. The share of the co-owner doesn’t pass to the surviving co-owner but can be willed to any other person. Tenants in common does require a probate process… Some states only allow joint tenancy by married persons.
‘Living will’ is a medical term. You cannot transfer property outside of probate through any instrument I know of. They can name you for other things like life insurance, but not property. If you are in a state that allows joint tenancy by unmarried people, you’d have to be on the deed pre-death, each party owns the whole of the property equally, and when one dies the rest then still own all of the property.
Loans and mortgages for years have included people who can’t qualify for the debt on his/her own. For many decades a non-working wife was co-owner on the deed and co-signer on the mortgage/loan. It is nothing new. The bank will require any owner to also sign the mortgage, even if they aren’t on the loan, and even if the third or fourth or ten owner is a starving artist or poor student who couldn’t qualify for the mortgage on his own. All owners sign the mortgage as it is a security document, not a loan document.
Three different documents - the deed to the property (ownership), the loan, and the mortgage (security on the loan). The bank will want all three documents to have the same individuals on them. Sometimes all owners will not be on the loan, but all owners on the deed will also be on the mortgage. It is rare for a party not on the deed to be a principal on the loan. That would be considered a co-signer most of the time.
You are an independent FAFSA filer and appear to have either an auto $0 EFC or qualify for simplified assets. It doesn’t appear to be support for you or paid on your behalf. I don’t think it will change your FAFSA outcome at all.
@rosered55 @thumper1 Yes, this is very tricky. When is one on Medicaid and not Medicare? My grandparents will receive $3,000/m from SSI - and that is what they will have to live on, plus some savings. Grandfather will definitely be getting Part B and D as supplemental. Grandma will be on a private insurance plan for a few years until she is eligible for Medicare. Would she be eligible for Medicaid until that age?
@twoinanddone Yes! What you have said makes a lot of sense. I am an independent student (guardianship by courts). How do I qualify for simplified assets / simplified means test?
Grossly simplified, the difference is that Medicare is health insurance for people age 65 or older; Medicaid is for low-income people and covers mainly nursing home care but not, generally, other medical expenses. So the house ownership should not affect your grandparents’ eligibility for Medicare. Medicare is pay as you go and there is no estate recovery and it is not restricted to low-income or low-asset individuals.
Your grandmother would qualify for medicaid if she is low income and lives in a state that has expanded medicaid to adults under the ADA. If she is buying private insurance, she probably has checked into eligibility for medicaid. Some people choose not to use medicaid if they can still afford private insurance because they may like their doctors and providers.
For making things more complicated, what if we put the house into a living trust? Any benefits to doing that? Could my name still be on the title, and the stepped-up basis would be received from the living trust? So many questions.
I do not believe Virginia has extended Medicaid eligibility. Another thing, could she still get Medicaid if I claimed her as a dependent? (Which we have discussed and I will claim them both as dependents when they retire and I essentially become their primary caregiver).
Please, talk to a lawyer with your grandparents.
YES. This stuff can get very complicated very quickly. You should not be relying on a bunch of strangers on an interweb forum.
Saying it again- you need a lawyer. What if a neighborhood kid climbs the fence and dives into the lovely pool your grandparents built? What kind of liability insurance do your grandparents carry? These are the kinds of things you need to be worried about if you are part owner of their house.
It is wonderful that you want to give your grandparents peace of mind. But you are taking on a boatload of other issues- unnecessarily in my opinion. A year from now something happens and you guys miss a mortgage payment and then two… do you want to be dealing with a foreclosure when you are trying to focus on finals and interviewing for jobs???
And exactly what kind of career are you heading for that you’ll be able to manage paying to support your grandparents (which you will need to prove in order to claim them as dependents) AND be their full time caregiver? Who can pull down a professional salary AND be a full time nurse to two people?
In the last year of one of my parents lives we were paying over $200K for round the clock home health attendants- in a labor market cheaper than Washington DC. You will have a very understanding spouse (down the road in the future) who will encourage you to be declaring your grandparents (and paying for) their “dependents”.
You are throwing around a lot of terms- living will, stepped up basis, dependents, etc. without really understanding what they mean and what the long term implications are. You are clearly a kind and caring person- go spend two hours with an eldercare lawyer to learn exactly the size of the liability you are assuming by going on to the mortgage and the rest of your plan.
You’ve got other relatives who have offered to write a check to help your grandparents right now- which is fantastic. The thing about writing a check- you help, with no long term liability or risk incurred. you send a check, someone cashes it. YOUR part of the plan- the mortgage, the title, being responsible for a kid drowning in the pool, paying for asbestos remediation when you find it in the roof or whatever the next big repair is- who wants that headache at the age of 20???
@blossom You make so many valid points… they’ve been there for 30 years with no problems (10 ft fence surrounding pool and the entire back-side of the property). I will definitely check on the insurance and liability. I also mentioned to them to do a termite inspection. They didn’t know they needed to do that. Fortunately, they’ve always had the property treated. I am a little worried now though about all the points you make… and honestly, the threat of lawsuit occurs everyday. I could be in a car accident, be sued, and not have enough liability insurance. Now that’s got me more worried!
I am a Computer Science major.
And $200k for a year - no one in my family could ever afford to pay that much.
One last question - what gets reported to FAFSA? It asks about investments, untaxed income, cash, etc. It does not ask about gifts you receive, such as being placed on the title of a home. That is not even accessible cash, anyways. Sure, my grandparents may have to file a form with the IRS stating that they gave me that as a gift, but I won’t have to put that in my taxes. And, they won’t have to pay any gift taxes, since there’s like a maximum 5.5 million lifetime gift exclusion. So, in reality, it would just be reported as equity in primary residence. No gifts/cash.
You present an interesting situation, because the “gift” you would be receiving would be a part interest in your primary residence. As you are aware, the primary residence is not a FAFSA-reportable asset. So I think you could make a good argument that you should get a pass here.
While real property is not a liquid asset, colleges do consider that equity in real property can be, and in some case should be, accessed to help pay education expenses. For FAFSA-only schools, this would of course be limited to property other than the primary residence.
If your grandparents can refinance at 3.5% without you on the mortgage, they should go for that. They can write a will that leaves everything to you.
The three of you also should investigate term life insurance polices that could cover the mortgage in case they would die before you are in a position to fully pay off the mortgage (or get an affordable one of your own if you’d want to keep that particular house).
They have a whole life insurance policy that they’ve had for a long time, as well as coverage through work ($250,000).
So, to make the situation even more difficult, what would happen if I paid my grandparents half of the amount of equity in the house - just for kicks and giggles. How would this impact the cost basis of the house and gift tax?
@kingpin2 I admire you for wanting to help your grandparents, and them for taking care of you when your parents abandoned you. Since they are currently in good health, I think now is precisely the time they should be taking steps not only to plan for their retirement, but also considering a potential Medicaid scenario that they might need several years from now. For this, you and they should consult with an eldercare attorney specializing in estate planning.
You can get added to the title as a part-owner of the property, which can be done with the help of a qualified real estate attorney, by both your grandparents gifting you a portion. Lets suppose the property is worth $400K and there is $140K in equity in it (an appraisal would need to be done to validate this). If they both give you a one-tenth share in the home’s equity, you can be given 20% of the equity this year. Next year they do the same, and in 5 years you could own almost all the current equity (all but fluctuations, etc).
If they keep up this pattern and don’t need long-term care, in perhaps 10 years you could own most of the value of the house -depending on your payments, etc.
I am curious as to why your grandparents are considering a 30 year refi mortgage - if they have lived there very long, the house should be more paid for, but it sounds like they kept re-financing to borrow more and make improvements they wanted (like the upgrades). In doing so, by not completely paying off the mortgage before now, they have made this planning more difficult - especially for potential Medicaid down the road.
The single biggest mistake that parents/grandparents make in their tax/estate/Medicaid planning is by not giving away assets sooner. Medicaid has a 5 year lookback against gifts for recovery purposes. The goal then should be to give away almost everything 5 years before they might need to apply. Thankfully, your grandparents are in good health now, and I hope they remain so for many more years, and can enjoy their retirement.
You also mentioned that your aunt has offered your grandparents financial assistance if needed - and it sounds like she is also on board with your grandparents wishes. Suppose your grandparents also both gave your aunt a gift of some of the home equity, and she and her husband turned around and made a gift to you (and potentially to your brother - I did not catch his age, if he is also having college financial aid questions). A good eldercare attorney can draft up a schedule to plan the gifts over time so that if or when a Medicaid application is necessary, by then, your grandparents will have been living in their home, that they no longer own. If they don’t need Medicaid, their wishes will still have been kept.
The inherent risk to them is perhaps if one of them predeceases the other, the surviving grandparent’s options become that much more limited - but it sounds like your grandparents would accept - and are not planning to sell the home, remarry, move away etc.
As for the impact to your potential financial aid, I had thought the FAFSA form requires the disclosure of a gift in the equity of the home as untaxed income. You are fortunate here that your school does not require the CSS Profile.
You are right to be asking these questions, and again, kudos to you for being the type of person to do what is right for your grandparents who have done so much for you.
3puppies- excellent post but I would add a caveat- the single biggest mistake people make is NOT understanding how medical, nursing, and non-nursing care (i.e. bathing, dressing, eating) works and how expensive it is. This is the mistake- not the “I have too many assets” mistake which after all- is a blessing to be in that position.
A friend of mine is pricing long term care insurance for her mom (who is in good health right now). I looked over the policy- it provides for 2 hours of care per day for various scenarios priced at X dollars plus inflation. I pointed out that our local Target pays more than that for someone to stock shelves and operate a check out line- how could you possibly hire someone competent and fluent in English to bathe and feed a parent who is incapacitated for LESS than the big box chains pay? And a parent with dementia can’t get by with 2 hours of care per day- 2 hours pays for a bath, getting dressed and undressed. No help with the toilet, meds management, feeding, etc.
Most people cannot fathom a healthy person in their 60’s needing round the clock care- not for a month after a stroke, but for over a decade from dementia. Most people cannot fathom that it costs real money to hire someone with eldercare experience, even if that person is not an RN and doesn’t have a college education. Most people don’t realize that they can’t pay someone “under the table” for months and years. So gross up the hourly wage- social security, unemployment insurance depending on your state, etc. Plus increase the homeowners policy so that you are covered for a slip and fall (yes, caregivers fall in the bathroom lifting their patient out of the tub).
A good eldercare attorney will know what things cost in your area and can help plan appropriately. The danger is NOT having too many assets. The danger is running out of money with a huge gap between the care that’s needed and the resources available.
The good assisted living facilities in my area are cash only- you are indigent? Sorry, there is a county facility up the road for you.