If we sell our parents' home (which is a living trust asset), will we have to use the proceeds to pay for dad's nursing home care?
A while ago we set up a living trust for our parents. Several years after that our father developed dementia and had to be placed in a facility. The assets in the living trust are our parents' home which could not be sold at that point to pay for his care as our mother still resides in the home. Our father's care is paid for my Medicaid. It looks like we need to find assisted living for our mother. If we sell the home and use the proceeds to pay for her assisted living will the nursing home be able to also require us to pay for our father's future care? And/Or will they be able to bill us for a portion of the care he has already received?
There are two major types of trusts, a living trust, which is revocable, or an irrevocable trust. The fact that the living trust is revocable means that your parents can dissolve the trust, change the trustee or make any other changes they like. Since the trust is under their control, it belongs to them. Living trusts are used primarily to bypass probate and smooth the transition of assets upon the grantors' death or incompetence. A living trust is created by the grantors during their lifetimes, as opposed to a testamentary trust, which is created upon the death of the grantors. A living trust does not protect assets from creditors or Medicaid. Your mother and father own the house. When the house is sold, Medicaid can force your parents to use a portion of the proceeds for your father's care. Yes, they can recover funds that were paid by Medicaid on his behalf.
For others facing this situation, there are steps that can be taken to protect the family residence for the "community spouse" (the spouse not on Medicaid). The easiest way is to change the deed from Mom's and Dad's names to only Mom's name (in this case, she is the community spouse. If Dad were the community spouse, you would put the house in his name). Once Medicaid approval has taken place, the community spouse can sell the house and keep the proceeds. Or the community spouse can continue to live in the house without the fear of Medicaid putting a lien on it. The other option is to use an irrevocable trust. The house is "gifted" to the trust and the grantors give up all control of the property. Since this is a gift, you have to consider the 5 year look back period. You also have to consider that your parents are giving up their $500,000 capital gains exclusion.