Planning on reverse mortgages
The Republican Congress has given older Americans new and urgent reasons to consider a reverse mortgage on their valuable homes. They may need the money to finance a loved one’s long-term care because, chances are, Medicaid won’t help.
And that’s what the lawmakers had in mind.
With virtually every Democrat opposed, House Republicans, by a two-vote margin, gave final passage last month to legislation that will make it harder for middle- and working-class elderly to qualify for Medicaid to pay for nursing-home care. The really affluent usually pay their own way.
The so-called Deficit Reduction Act is part of the conservative effort to shift health-care costs from government to individuals, and one of its aims is to prod older Americans into buying long-term care insurance, even if they have to mortgage their homes. Not surprising, much of the legislation was written by and at the behest of the Center for Long Term Care Insurance Financing, which has long sought to deny Medicaid planning to the middle class.
First, under the legislation, the look-back period during which gifts or asset transfers to children or charities will bar or delay Medicaid eligibility, was increased from three to five years. Second, the look-back period will begin not on the date of the transfer, but on the date of the Medicaid application, which would, of course, delay eligibility even beyond five years. Third, all applicants no matter how old or in what mental condition, must present proof of citizenship.
Thus if Granny gives her grandson $10,000 for college today, and applies for Medicaid to pay for her nursing care in 2007, she may have to pay out of her own pocket and wait until 2012 before her look-back period runs out and she becomes eligible. And if Granny was an immigrant and can’t find proof of her permanent residence or citizenship, no Medicaid.
In addition to changing the look-back period, the legislation has a more ominous provision, one that could force a nursing-care applicant to sell the family home to qualify for Medicaid if the home is worth more than $500,000. The reason: the amount over $500,000 would be considered a countable asset when Medicaid is considering an applicant’s eligibility. Only $5,400 per couple in assets or $4,150 per individual is permitted, but until now the home was excluded as a countable asset.
According to attorney Sara Meyers at Manhattan’s Brookdale Center on Aging, the new legislation will “exclude from Medicaid eligibility for nursing facility or other long-term care services, certain individuals with an equity interest in their home greater than $500,000.” It’s not unusual to own a home of such value, especially in New York, and states may choose a greater amount up to $750,000, depending on local real estate values.
Elder lawyers and their panicky clients are scrambling for new strategies to protect the home and savings, if and when a loved one needs nursing-home care. For most middle-class couples, the concern is depleting their life savings and then seeing one spouse go into a nursing home and leave the other behind, struggling to keep up the home and avoid impoverishment. Protecting the home, a couple’s most valuable asset, is paramount for security in old age.
As the lawmakers intended, and the long-term care insurers have advocated, one way to protect the home and get around the eligibility restrictions is to lower the “equity interest” in the home below $500,000 or whatever higher threshold is placed on equity in the home. Meyers, as well as elder lawyers with whom I’ve consulted, say a reverse mortgage (or a traditional home equity mortgage) may be the best way to reduce equity.
Garden City elder lawyer Jayson A. Wolfe says that a reverse mortgage could be a “planning tool” to lower the equity, and is better than a home equity line of credit, which requires monthly payments.
Great Neck elder lawyer Ronald Fatoullah says that in addition to lowering or eliminating the amount of equity that otherwise would be a countable asset, proceeds from a reverse mortgage, which must be used for the applicant’s care, could buy a long-term care policy. The proceeds could easily pay the premiums, if that’s how you want to use the money. And in New York and a few other states, the reverse mortgage could buy a special “Partnership” policy that would protect other family assets from Medicaid. See the NY State Partnership for Long Term Care or www.nyspltc.org.
Fatoullah notes there are other ways to protect the home and preserve assets, which require planning long before one needs Medicaid. They include transferring the home, perhaps via a life estate. In New York and a few other states, such asset transfers, even at the last minute, are not penalized for Medicaid home care.
Dennis Haber, a reverse mortgage specialist from Hicksville, said proceeds of a reverse mortgage could pay for home nursing care (and other medical bills), provide added income and eliminate the need to apply for Medicaid. He said a reverse mortgage also could provide a couple with a line of credit, which could grow with interest during the look-back period. The most popular reverse mortgage, a Home Equity Conversion Mortgage, is guaranteed by the FHA and is considered a loan, so the proceeds are not taxed. And you remain the owner of the home, as long as it is kept up and the taxes are paid.
Finally, as of Jan. 1, the FHA increased from $312,896 to $362,790 the loan limit for single-family homes in urban areas, including Long Island. The limit for more rural areas also rose, from $172,632 to $200,160. Find out what you can get at www.reverse.org.
Source: Newsday
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