By Linda S. Ershow-Levenberg, Certified Elder Law Attorney (C.E.L.A)
October 2007
LOANS AND MORTGAGES
What if parent loans child money and takes back a mortgage on the child's property?
The loan is not a gift.
The mortgage is a resource but can be held by a Medicaid recipient, subject to a Medicaid lien. However, Medicaid may take the position that the applicant should call the mortgage, or sell it, rather than keep it as a source of income.
The principal and interest received in the mortgage payments is countable income in the month received.
Forgiveness of the mortgage during the 5 year look-back period prior to a Medicaid application is a transfer that causes a penalty.
Transfer of the mortgage to the community spouse is an Excluded transfer.
Suppose the Mortgage is held by the community spouse, or had been transferred to the community spouse by the Medicaid recipient?
What if the community spouse dies, and her Will forgives the mortgage? This may be a transfer since the mortgage is an asset included in the augmented estate which is subject to the nursing home spouse's elective share claim, if there is one.
If the mortgage is held by the Medicaid recipient, and his Will forgives the mortgage:
The Medicaid lien has priority status over such a provision of the Will.
What if child lends parent money to pay for ongoing expenses, because parent has insufficient funds?
Parent should sign a promissory note with interest, and record a mortgage against parent's house.
This will protect child's claim for repayment if parent sells, goes to nursing home, applies for Medicaid, or dies.
Sometimes the child gets repaid when parent moves to nursing home and sells the house. Without a Note, Medicaid may view the repayments to the child as gifts unless the child can accurately document each of the child's loans/payments on behalf of the parent.
In parent's estate, the Note would establish the repayment as a deductible debt.
The information you obtain at this site is not, nor isit intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation.
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