We're going to run out of money caring for my sister. What should we do to prepare?

1 answer | Last updated: Oct 12, 2016
A fellow caregiver asked...

My sister and I own a home together in California. We both live in this house. She suffers from Multiple Sclerosis. There may be a time I can no longer care for her alone. We don't have the resources to afford in-home care, nursing home care or long term care insurance. She receives monthly disability payments from Social Security of about $1300. She does not receive SSI because the amount of the disability payment disqualifies her. She has profit sharing of about $20,000. My questions are: Will we need to sell our residence to pay for care? Do I need her to quit claim the house to me so she has no assets and could then be eligible for Medicaid? Should I draw up a will to leave the home to her if I should die? We have no heirs. Thank you.

Expert Answers

Fortunately, there's a special rule that will help you keep your house if and when your sister needs long-term care coverage from Medicaid. A basic Medicaid rule is that if Medicaid pays for someone's long-term care (in a nursing home or at home), Medicaid will recover the total amount it has paid for the person's care when that person dies. Usually, this recovery comes through a lien against the person's home or, as in your case, a home in which she has a partial interest. That often forces the heirs or co-owners to sell the home, or refinance it, in order to pay off Medicaid.

People who own a home and believe they will eventually apply for Medicaid coverage of long term care sometimes give away the home to relatives, trying to keep the value of the home in the family and to avoid repaying Medicaid. But Medicaid has a rule that does not permit such asset transfers within the five years prior to applying for Medicaid coverage. If such a transfer is found to have been made within the five-year period, Medicaid will disqualify, for an extended period, the person who transferred the property.

Now comes the good part for you and your sister. Medicaid has a special rule that allows Medicaid eligibility for long-term care (paying the full cost of a nursing home) even if a house has been transferred from one sibling to another during the five years prior to applying for Medicaid, if:

  1. the sibling receiving the transfer already has an ownership interest in the house; and
  2. the sibling has lived in the house for at least the previous year.

From your description of your situation, it sounds like you and your sister would qualify for this special rule. Taking advantage of the rule would require that your sister transfer her ownership interest in the house to you while you are living in the home. That can be done any time before she applies for Medicaid coverage of long-term care, as long as you are still living in the house. Once the transfer is made, your sister may be eligible for Medicaid without the value of the house being considered (although still depending on what other income and assets she has at the time), you will be sole owner of the house, and Medicaid will have no claim on the house after your sister is gone.