Low income Dad owns house outright, lives alone, needs to move and live with us. What's the best way to sell his house and get a big enough one for he and us? My dad is 76 and his health is declining. He is very low income, surviving on SSI alone. He lives in an old house in a small town a couple hours away from us. It's about time for him to not be living alone anymore, and we're trying to figure out the best way that we can get a bigger house, possibly with a guest house so that he can live with us.
I have concerns about the financial ramifications for both him and for us (family of 4 My wife, myself, and two small children), and about the best way to make this happen.
He owns his house free and clear, no debt on it whatsoever. It's not in the greatest shape, and we're not sure what it's worth, but let's say $80,000. He's not ready for assisted living yet, but that could change anytime. He gets his medical care through the VA.
Ideally he could sell the house, and we could take the money form that sale and put it down on a house in our city. The sale of his house will almost certainly not pay for a house large enough for all 5 of us, so my wife and I could take on the mortgage payments for the difference. We'd likely be paying a lot less than if we bought a house ourselves, since we're not wealthy, don't own a home yet, etc., and the sale of my dad's house would make for a large down payment.
My main question is what's the best way to go about it? We've thought of him signing the house over to us, we make the sale and use the money to buy a house and have him live with us. But I've been reading about stipulations with Medicaid where they can penalize him for up to 5 years for doing something like that.
So would it make more sense for him to buy the new house and we live with him and pay the mortgage payments? I just don't know how that will affect his social security income.
I know this is a long one, and I thank anyone who takes the time to read it and comment.
For the life estate to be effective the purchaser (the elder) must live in the residence for at least one year. In the New York case the Medicaid application was denied because the state contended that the elder did not meet this requirement.
Personally I love Mr Robbins suggestion on the use of a living trust. But as these are subject to changes by state laws, I'd be always concerned about your state legislatures' changing things so something excluded now won't be in the future. I think the life estate exclusion has happened in NYS so it can change. In my mom's state (TX), there is talk of removing the Enhanced Estate Trust (Lady Bird Deed on houses) from exclusion by probate for those who get Medicaid (Medicaid estate recovery is done in probate court), you never know.
My mom in TX did a TUMA for grandson & it could be structured to be OK for Medicaid. I think all states have some sort of UTA (Uniform Transfer to Minors).
Before you get too far in this, I'd really suggest that you do a couple of things:
- speak to a couple of Realtors to see what they come up with as far as the sale of the home & the probably days on market for it. I'd speak with Realtors with a bigger group that does MLS and can come up with a comparables book in a couple of days on the property. I'd limit the Realtor to those that have a good % of actual closings (not just # of properties under listing) and their days on market (DOM) before going to closing - those are the ones who really sell stuff. You need a better idea of what house could bring and what problems are there and need to be deducted. If the property has lots of delayed maintenance, the sale value could be low. You need to keep all this as later on IF dad goes onto Medicaid & there is any ? as to whether house was sold for fair market value (FMV) you can show the reason why a house with a tax bill of $ 82K only sold for $ 61K
DOM will be important as there could be significant costs to having it on the market. Like regular maintenance on the yard; utilities running 24/7 so the house can be shown; having the house clean & prettied up or staged; proper insurance, etc. If it costs $ 600 extra a month to have it on the market, you really need to take that into account to putting it on the market. Dad living at the house during this time probably won't work. Old house filled with old peoples stuff is hard enough of a sale but having them in the house during showings or having to schedule around them being away is really difficult unless you live in an area where there is no inventory and lots of demand. Right now where I live in New Orleans there is no inventory in better areas and you could live in a Hoarders TV house and folks will be in a bidding war on it but this is super rare. If the house is in a small town with limited group of folks wanting a home, that isn't going to happen. A good Realtor in all this will be invaluable in to what needs to realistically happen to actually getting the property sold & gone.
Would it be feasible for dad to move in with you while the house is one the market for the 6 month listing agreement? Perhaps use this as a testing period to see just how feasible this would be for the long run. Make it clear to everybody that this is just for the listing agreement period. If it works out, then great. But if not, at least you know it now and can look for AL (if he needs that) or Section 8 apt for him in your city (if it just flat doesnt work for him to live with you all) or to figure out how you & your spouse can afford a home for your family where dad could legitimately pay you rent for (if everybody can get along and dad want's to)
- I'd also suggest dad apply for Aid & Attendance from VA asap. When he gets it, it will be retro active to the date of the application. Could be a nice little windfall for him.
- Also I'd suggest, that if there is a VA retirement home anywhere driving distance to you, I'd go ahead and put his name on the list for that too. He may not want to go there today but have his name on the list & keep up with it being "active". There is an especially nice armed forces retirement home close to us in coastal Mississippi and their list is like 3 years. Good luck.
Assuming your father has no other assets, I would suggest not using all of proceeds of the sale towards the purchase of a new property. Veteran provided care notwithstanding, there will be emergencies as well as routine expenses for which he will need funds (e.g., clothes, dental work, etc.).
With the proceeds that will be used towards the new property I would suggest considering the purchase of life estate.
Essentially it works like this:
Your father makes his contribution to the purchase of the house in the form of the purchase of a "life estate" in the property.
His "life estate" gives him the right to live in the property for the balance of his life.
The purchase of the life estate is not counted as gift for Medicaid eligibility purposes and therefore the "5 year look-back" does not apply.
At his demise the life estate is terminated and you retain full ownership of the property.
Further, if he became a Medicaid beneficiary before his demise, there will be no Medicaid Estate Recovery against the property.
P.S. If he is a wartime veteran he may qualify for non-service connected pension to assist with care, including that provided by a family member. The maximum award for 2014 is $1,758 per month.