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His home is in poor condition and is not worth much. He wants to unburden himself of the house before he goes into the nursing home. He is also in the process of getting qualified for Medicaid. The house will not be an asset any more after I buy it from him and use the proceeds to pay off the mortgage. Is this allowable under Medicaid guidelines? I am not a relative and it will be a third-party sale.

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To the extent that he is selling it under the fair market value, it will be considered a "gift" by Medicaid. However, if the house is in poor condition and is not worth much, that may not be much of an issue. Have you (or he) had an evaluation of reasonable price by a realtor? How much could he get for the house if he sold to one of those firms who pay cash for run-down houses?
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It would be wise to get an appraisal first. If you pay, for example, $20k and pay off a $20k mortgage, but the house is worth $30K, he will be penalized by Medicaid for the first $10K of his care. You may not be doing him a favor if this is the case.
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If you buy it for less than market value, the IRS may consider it a gift to you. If you buy it for more than market value, Medicaid may consider it a gift to him. Call the "we buy ugly houses" people and get a quote, plus see a real estate agent for an estimate so you know what it's worth. He'll need that info if he applies to Medicaid and maybe for his taxes.
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An appraisal will not give you true market value. I'm a realtor and I've seen appraisals that were way off from what a willing buyer would pay for a house. If the home is in poor shape it might benefit you to hire a professional home inspector to evaluate its condition. Also roof, heat and air, pest company. You might need that professional evaluation to support whether or not you paid less than market value.
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And even with two "professional" inspectors (one that is licensed by the VA) does not guarantee they will catch all that is wrong with a house. My new (old) house I am discovering is riddled with problems both inspectors missed or just discounted because it is 35 yrs. old. It sounds like Karen is trying to do her friend a favor and runs with emotions, rather than an objective real estate transaction, but I could be wrong. It always helps to have a licensed realtor as well. Still, the market only consists of sellers willing to sell to buyers willing to pay their price.
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All of the above suggestions are correct. It needs to be sold for "fair market value" or close to. You need an appraisal from a realtor AND you need a couple of inspections of the house. My mother's house had a tax appraisal of $90K, that was from the county tax assessor (which isn't always the same as FMV). But, her house was in such poor condition that I ended up spending $8K to get it fixed up decent enough to sell, plus we ended up getting the home owners insurance to help pay for a new roof, otherwise that would have come out of my pocket too.
We ended up selling it for $71K. Comparable houses in the area were selling for between $70-80K, so it was in the fair market value range. Now, will Medicaid look at the $90K and say that is the fair market value, who knows. It may all depend on the Medicaid caseworker you get also.

So, cover all your bases. Get appraisals and comparables for the area. Figure out how much it would cost to get the house in sellable condition and go from there.

Good luck.
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Realtors do not all "have an agenda".. We do comps all the time for people, no charge, no agenda. We have seen the inside of the houses, the appraisers have seen the pictures.
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You are correct, I was a Realtor many years ago and people treat you like you are a used car salesman....out to get them, when all we are trying to do is assist you with buying or selling you home or providing information for free.... do we hope that someday you will come back and we can help you buy or sell? Yes, of course we do and so would you if you were in that business.
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HolyCow. Thank you. It's amazing that people feel that way abt realtors. I work 7 days a week, 12 hours a day. I'm sure you remember. My time is not mine, it's theirs. My office just held a fundraiser and raised 21k for the Salvation Army. All of the food was prepared and paid for by the agents!
Enough abt real estate, Dogobone, thanks for your answer. That's what I've been looking for.
Veronica, I'm truly sorry your experiences have been so bad. There are always good and bad, fortunately more good than bad
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@Dogabone. I hear you. But what you have written brings certain important questions to mind. Almost every caregiver on this forum talks about spending down a parent's assets (usually a surviving Mother/widow's assets) while being vigilant as to how and for what these funds get spent during the five-year Medicaid look-back period. My question is whether it is indeed legally possible to 1) have a legal, valid will, in which one lists bequests to various family members and friends, charities, whatever, in specified amounts and to be paid from one's estate; and 2) at the same time maintain separate funds and/or accounts, and spend down these funds as required for the sole personal use and the purpose of caring for the parent, including all necessary personal needs, medication and medical care as required by the parent (also named in the valid will) until such time as these funds reach the $2000 Medicaid asset limit at which point the caregiver accepts financial responsibility for the parent (if possible) until that time when the need of a nursing home becomes evident (if in fact this point ever comes), at which point the patient's (parent) care might now fall under the jurisdiction of the State's Medicaid program. I'm not a lawyer, that's obvious. But are the super wealthy the only people who have use of the power of the will? Secondly, you mentioned how this was handled by your Mother by dispersing her assets as she wished at some point prior to her passing. This seems very civilized. But how does it work (or does it conflict?) in relation to the Medicaid five-year look back? If we had cradle-to-grave health care as many enlightened countries have none of this would be relevant to our lives, it seems.
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