If we rent out my parent's home, will all the rent money go to the nursing home?

Klop56 asked...

My parent in San Antonio recently was admitted to nursing home care after being hospitalized for an accident. Their Medicare/health insurance days expired after 60 days (though I do not know why because I thought Medicare paid for 100 days). Their income is not enough to pay the over $5000 cost of the nursing home. As trustee I am writing checks on their account to pay for cost but that will run out in two months - and I will have to apply for Medicaid. My parent owns a house - it could be sold to pay for nursing home and that would help - however two people who work in nursing homes recommended renting the house instead. My question is - if the house is rented, does 100% of the rent have to go to the nursing home (which still will not pay the cost even with retirement and social security) - or can some of the rent be reserved for house taxes, home insurance, rent management services, etc. ??? I would still need money to maintain and keep the house - in case my parent could return to live there. I can not afford to maintain it myself. I know in Texas Medicaid allows a person to keep the homesteaded house - I was told the nursing home resident would not be allowed to put any of the retirement pay toward the house. Fortunately house mortgage is paid. I do already know that Medicaid tries to recover money from an estate after death. Thank you for you answers.

Expert Answer

In your parent's case, renting the house while he or she is in the nursing home may be a good idea, even though much of the rent would go to reimburse Medicaid for its coverage of the nursing home stay. But you have to be careful that the rent does not disqualify your parent from nursing home coverage under Texas Medicaid rules (read on below).

If you sell the house, the money your parent receives for it will disqualify him or her for Medicaid nursing home coverage until your parent spends the money down to Medicaid asset limits, usually only about $2,000. So, if your parent remains in the nursing home, your parent will have to use the funds from sale off the house to pay the $5,000 per month cost of the nursing home. Your parent could also use the money to pay off other debts, but he or she cannot just give it away and still qualify for Medicaid nursing home coverage. In other words, if you sell the house now, most if not all of that money will go to pay the nursing home bills.

There may be advantages to renting out the house instead. The first big advantage is, as you say, that the house would be there for your parent if and when he or she is able to leave the nursing home. (If you rent it, make sure not to offer a long lease, and let the renters know of the possibility that they might have to move if your parent needs to return home.) Also, renting the house would also let you use some of the rent money to maintain the house. Make sure to put the rent money into the same bank account you use to pay for upkeep and taxes on the house, and keep good records about house-related expenses, so that you can show them to the Medicaid program. Because that maintenance money is necessary to maintain the rental income, it is a legitimate expense that can be deducted from the total rent (gross income) when Medicaid figures your parent's (net) income. That net income, however, would have to go toward nursing home costs.

The tricky part may be that the rental income, together with your parent's retirement and Social Security income, might put him or her over the Texas Medicaid program's income limit for nursing home coverage. In other words, the total income including rent might make your parent ineligible for Medicaid coverage at all. And that might force your parent to move into a less expensive nursing home that could be paid for with his or her total monthly income. So, you need to contact the Texas Medicaid program to find out the answer to a very important question: If your mother has total income that is over the Texas Medicaid program's income limit for nursing home coverage, can your parent still be eligible by paying all that income to the nursing home (or to Medicaid, if that's how they handle the paperwork)? If the answer is that she can be eligible for coverage by paying all her net income to the nursing home, then renting the house sounds like a good idea.