Will Medicaid take the proceeds of the house before we get our inheritance?

A fellow caregiver asked...

My brother is 60 years old, single, and has early onset Alzheimer's. He is currently in an assisted living facility in New Jersey. He has recently begun wandering and they want to transfer him to their nursing home as soon as possible. He has tens of thousands of dollars of credit card debt, which my sister and I have been trying to pay down with his modest income. We also each had loaned him money over a year ago that paid off one credit card each which then helped his interest rates to go down and made his payments affordable without him having to declare bankruptcy. We all have inherited a house in NJ left to us equally by our parents, and we are in the process of cleaning it out so it can be sold. We thought that when the house is sold, our loans to him would be repaid from his share of the inheritance. The nursing home wants us to apply for Medicaid and they made it sound as if they will take every dollar he has to his name as well. Would we be able to use his portion of the inheritance to pay off his debts including those to us or would the nursing home have first rights to the money he inherits?

Expert Answer

Your situation is a difficult one, and presents several different sets of questions. Some of those questions concern coverage for your brother's upcoming nursing home care. Other questions concern whether and how you and your sister can get repaid the money you've lent your brother. Let's take them one at a time.

First, there's the question of who's going to pay for your brother's nursing home care. Medicaid considers a person's income and assets when determining whether it will cover nursing home costs. In your brother's case, whether he qualifies for Medicaid nursing home coverage, and when, will depend in part on how much money he gets from the sale of the family house. As long as he owns a one-third interest in the house, until it's sold, he probably won't even qualify for Medicaid nursing home coverage. Once the house is sold, he will have to spend almost all of the proceeds he gets from the sale of the house -- and the spending must be either payment to the nursing home or other legitimate expenses -- before Medicaid will begin to cover him. Once he's spent his assets, Medicaid will then consider covering his nursing home care if his income is not too high. (If he repays you and your sister from the proceeds of the house sale, he'll qualify for Medicaid that much quicker.) If he continues to receive income, that will also have to be paid to the nursing home, except for a small allowance for personal expenses.

Until your brother qualifies for Medicaid and Medicaid begins actually paying for his care, Medicaid will not have any claim on your brother's portion of the proceeds from the sale of the house. So, if you sell the house before he becomes eligible for Medicaid, there is no reason why he can't repay the debt he owes you and your sister out of his portion of the house sale. Because of his Alzheimer's, however, there's a question about whether he is, or will be at the time, competent to acknowledge the debt and pay you (or even execute the sale of the house). If he's still competent to make such decisions, you and your sister may want to help him execute a Power of Attorney for Finances as soon as possible. This will allow you, or whomever else your brother appoints, to execute the necessary documents for selling the house and paying you and your sister what he owes you, as well as providing for someone to legally oversee his continuing finances once he's no longer competent to do so himself.

If your brother is already at the point where he's no longer competent to make decisions about his finances, you may need to get help from a court in order to handle these matters, through a guardianship or conservatorship. Your brother's condition may make it difficult for you and your sister to accurately determine your brother's legal competence, and therefore to decide the right course of action. So, it's probably a good idea for you to seek the advice of a lawyer who specializes in elder law, family law, or probate law. This is particularly true because the decisions you and your sister, and your brother if he's still able to participate, may have long-term consequences during the course of your brother's illness.