QMC

How does Rental Property affect Medicaid?

It is not uncommon for a senior to enter long-term care in a nursing home, and part of their asset holdings income rental property, and their monthly income partially consists of rental income. It is not uncommon for retired individuals to invest in residential rental real estate as an investment and as income producing property. But do the Medicaid rules allow an applicant to hold

So… can an individual own rental property and still qualify for Medicaid benefits to pay for their nursing home care? The answer is yes, but it does require early Medicaid planning and estate planning to ensure Medicaid eligibility.

The fair market value of any rental property held by a Medicaid applicant is included as a countable asset for purposes of determining whether the prospective Medicaid recipient qualifies for the Medicaid program property rented to third parties are not exempt assets. Therefore, if the applicant holds rental property at the time of need for nursing home care, those assets will likely place the applicant above the asset limit are subject to spend down before Medicaid coverage will begin.

So how to protect rental real estate from needing to be liquidated and spent down on the long-term care recipient’s care costs before qualifying for Medicaid? The answer, as always, lies in pre-planning. Since rental properties are rather clumsy assets for purposes of the Medicaid program, they should be addressed well in advance of the need for care. It is important to remember that Medicaid rules prohibit any significant Medicaid planning transfers within 5 years of a Medicaid application, as any such transfers violate the 5 years lookback period. Therefore it is important to plan early.

One option, if set up 5 years in advance, would be to set up an irrevocable income trust or perhaps a limited liability, and to assign a portion or all of the legal interest in the entity to other family members and/or loved ones. This work will take the legal advice of an elder law attorney, estate planning attorney, or a law firm well versed in real estate law. How these moves fit into the overall Medicaid plan can, as always, be directed by the professionals at QMC.

If the Medicaid applicant is married, then other strategic moves are available. The married couple should be filing a Division of Assets, and under that Division a spousal share will be established granting assets for the community spouse. While there is still no exemption for this property, the rental property can be assigned to the community spouse within his or her spousal share, thus saving the rental property for the family. Additionally, the rental income produced by the property would not be considered by Medicaid income that is subject to payment to the nursing home as a co-pay for the nursing home spouse. This income will go to the community spouse and can shore up monthly income if the community spouse has low income.

And under this strategy, the rental property would not be subject to any estate recovery after the death of the Medicaid recipient.

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