Bob: We have been told that if we have our daughter on a quit-claim deed for five years, our house would not be subject to being taken over by Medicare if either of us goes to a nursing home. Is this true?
Phil Moeller: Medicare does not “take over” a person’s home. The issue that arises is whether the value of a person’s home is large enough to make them ineligible to qualify for Medicaid, which can cover a person’s stay in a nursing home. If a person sells or transfers his home to a third party to hide assets and avoid this disqualification, Medicaid usually uses what’s called a “look back” period of five years to judge whether such a sale will affect Medicaid eligibility. Because Medicaid rules are set at the state level, I suggest you get in touch with your state’s Medicaid office and find out what rules would apply to you. You also should consult with an attorney familiar with Medicaid and real-estate law in your state.
Ruth – California: I understand that profit from the sale of your home affects income, which, in turn, can result in a surcharge for Medicare premiums. But does it make any difference if you immediately put all or part of that income into the purchase of another home? Also, is the surcharge in effect for two years until the tax cycle returns you to your lower income? These surcharge rules seem to make “downsizing” very expensive for seniors.
Phil Moeller: Medicare’s high-income surcharges are based on taxable income. So, the answer to your question depends on whether the proceeds from the sale flow through to you as taxable income. I am not a tax expert, but a married couple usually can exempt from taxable income up to $500,000 in gains on the sale of their primary residence.
Also, the high-income surcharge lasts only for one year. For example, someone with high income in 2021 would see this reflected on their tax return filed in 2022 and would pay the surcharge during 2023. If their income declined in 2022, the surcharge would disappear in 2024. If you find this lag confusing, join the club.