Dear Mr. Premack: My question pertains to my disabled brother who receives care at home through Medicaid. His only asset is his home, worth about $85,000, which he inherited from our mother with approval of all 8 siblings. Is there an advantage to taking out a reverse mortgage to give him supplemental income to pay for more caregiver hours? Medicaid only provides six hours per week, and he could really use care 24/7. Thank you. – SDR
In earlier columns, I’ve stated that a reverse mortgage should only be used when there is no better choice. For your brother who needs in-home care yet lacks funds to provide for his needs, a reverse mortgage may be a viable option. The house was his inheritance, meant to help provide for his well-being. The cash flow from a reverse mortgage can be spent to provide additional hours of in-home nursing care without asking the taxpayers to foot the bill.
In order to legally qualify for a reverse mortgage, your brother must be at least age 62. If he qualifies, the monthly check he receives will not interfere with his current Medicaid benefit – but only if he handles it correctly. Medicaid treats a reverse mortgage like any other loan from which he might receive funds: when the loan proceeds come in, the money is not treated as income (because he must repay it eventually). However, he must spend the entire amount each month, in the month it was received. Any money he keeps into the next month becomes a countable resource – and if his countable resources exceed $2000 in value he will lose his Medicaid benefit.
The reverse mortgage will have to be repaid when he dies, when he sells the house or when he permanently moves out of the house. However, if he must leave the house for medical reasons for more than 12 months, and he gets the lender’s permission, the loan will not yet be due.
When the loan comes due, the reverse mortgage must be repaid with interest. Since no payments are made during the life of the loan, interest builds up. He won’t be able to borrow the entire $85,000 value of the house, because the bank collects his remaining equity as interest.
He does have one other alternative: he could shift from Medicaid’s at-home program to Medicaid’s nursing home program. He would obviously stop living in the comfort of his own home, but the nursing home program would cover 24/7 care in a skilled care facility. His house would be subject to the Medicaid Estate Recovery Program (MERP) upon his death – so whether he uses a reverse mortgage or he uses Medicaid, the house may be used to pay for his care. On balance then, the reverse mortgage may be very attractive because it allows him to stay at home while the funds last.
Paul Premack is a Certified Elder Law Attorney and a Five Star Wealth Manager (Texas Monthly Magazine 2009-2013) practicing estate planning and probate law in San Antonio.
Original Publication: San Antonio Express News, April 23, 2010