Will we have to pay the nursing home for the house loan?
My wife and I borrowed $72,000 from my mother-in-law on April 5, 2005. We used the money to purchase a home in which my mother-in-law lives with us. On the advice of a CPA, we borrowed the money at 5% interest, 10 year term of repayment. We have paid $600.00 monthly since May 2005. The money was borrowed rather than gifted to avoid the lookback penalty if my mother-in-law had needed nursing home care in the future. QUESTION: If my mother-in-law were to go to a nursing home now, would the nursing home expect my wife and me to continue paying the $600 monthly (but to the nursing home rather than my mother-in-law)? This upcoming May 2010, we will have paid for five years, with five years remaining if my mother-in-law were to live to 2015. Thank you for your assistance.
Expert Answer
You've got a fairly complicated situation. First of all, if your mother-in-law had bought the house in her name instead of lending you the money, Medicaid eligibility rules for nursing home coverage would have allowed her to transfer the deed to you when she went into the nursing home, without any penalty to her and without Medicaid having any claim on the house. That's because of a special Medicaid rule that allows transfer of a house from a parent to an adult child who has been living in the house with the parent for at least two years, and whose care of the parent allowed the parent to stay at home and out of a nursing home. But since the house was always in your name, this rule probably doesn't protect the house.
In your situation, any money you pay to your mother-in-law under the loan becomes part of her cash assets, which would be counted by Medicaid when deciding her eligibility for nursing home coverage. If Medicaid finds her eligible for nursing home coverage, she would probably have to pay most or all of that $600 per month to the nursing home to help offset the cost of her care.
What happens if you stop paying her the money? That's a tough question to answer. Your mother-in-law would have a legal right to sue you for the unpaid balance of the loan, but I doubt that's what you're worried about. What Medicaid would do isn't clear. Medicaid has a right to reimbursement -- for all the money it will pay for her nursing home care -- from your mother-in-law's estate when she dies. If you stop repaying the loan, the debt you would still owe her -- the un-repaid portion of the loan -- would legally be part of her estate. That means Medicaid would have a legal right, at that time, to try to collect the unpaid loan amount. Whether Medicaid in the state where your mother-in-law lives would bother to do that is difficult to say -- it depends on how well-staffed and aggressive the state Medicaid reimbursement program will be sometime down the road when your mother-in-law dies. To get a good sense of how likely that might be, you should consider consulting with a lawyer in that state who is experienced with Medicaid planning. To find a lawyer, you can contact a local county bar association and ask for a referral to lawyers who have Medicaid experience.