Selling Kansas or Missouri Houses for Medicaid Eligibility
KC Elder Law
Elder Law and Estate Planning for Kansas and Missouri
This is Ben Souchek with The Sierra Group and Home Downsizing Solutions. We provide multiple solutions to home sellers, specifically individuals that are considering the downsizing process, and we provide home-buying services as well as having our affiliated agents provide traditional home selling services, such as listing a house in a conventional manner. And today, I’d like to welcome Dan Flack with KC Elder Law to our Zoom call. They have offices in Overland Park, Kansas and Lee’s Summit, Missouri, as well as Kearney, Missouri.
And we’ve run across circumstances from time to time where a homeowner or their family is wanting to get eligible for Medicaid, but they have assets such as a house, probably their last asset to take care of before that can happen. And so I wanted to get an expert in that field and ask a few general questions.
And I will mention that today is in July of 2020, and I’m sure, as Dan will tell us, the rules for this are changing whenever. So what we might talk about today may not be applicable, as Dan said, maybe tomorrow or three months, six months from now or 12 months from now. Please keep that in mind when you’re watching this. Anyway, Dan, welcome to our call today.
General Information About Selling A House For Medicaid Eligibility
Dan Flack: Forgive me if I go into more than what you may be looking for. But when it comes to Medicaid, the house is an exempt asset. Even an individual who is not married and the house is vacant, they don’t need to necessarily sell their house in order to be qualified for benefits. As long as they intend to return home, even though that intent may not be realistic, the house can be exempt. Now, that does not keep the state from putting a lien on the house, which they can, and more often now will put a lien on the house to try to recover what they’ve paid out in benefits while the person was on Medicaid.
Really what you’re talking about when you’re selling a house is taking an exempt asset and turning it into countable cash. If it’s a person who is already on benefits, they need to report the sale of the house to the state. The state then will ask them to show how much they got, proof that they received fair market value for the house, and then ask them where did the money go? What have they done with it? What you end up having is, if that money is going into a bank account, which it invariably is, that puts them over the Medicaid limit and they will have to then reduce those assets back down under the limit to get back on benefits.
The other thing I would say is for people who are thinking, “Well, I’ll just sell the house and I can give the money to my kids.” You cannot give away money on Medicaid. Right now, it’s about $6,000 to $7,000 is one month of ineligibility that they’ll experience after they’ve given that money away.
Another thing is, just since we’re talking about giving things away, a lot of people bring up the tax laws about being able to give away $15,000 a year or such, that does not matter to Medicaid. Medicaid assesses penalties on the first dollar you give away, and that would include transferring the house. If you decide, “I want to sell the house, but I don’t want to get off Medicaid. I’ll give the house to my son, daughter.” That’s a penalty as well.
How Does The Five Year Look Back Period Work
What happens is when you go to apply for Medicaid, on the application there is a question that asks, “Have you sold, transferred, or given away any assets within the last five years?” If you are able to preplan before that five years, that’s fantastic.
And another thing that’s worth bringing up would be, adding a joint owner to the property would be a gift as well. If you have a house jointly titled with your son or daughter, you gave away half of the value of the house at the time you added their name.
Selling A House For Fair Market Value for Medicaid
Ben Souchek: I know that we’ve worked in circumstances where, especially if a house hasn’t had anything done to it for literally decades, 20, 30, 40 years, and it needs some serious repairs and updating to get it to what most people would claim it’s full potential value or full potential market value. And I know that we’ve had circumstances where a person says, “Well, look, we need to sell this house for fair market value.” And I certainly understand that. But typically we can show, both by pulling up the comparables and documenting the condition of the house, to show the state or whoever is looking at this, that indeed they sold the house for basically the value of what the house was in its present condition.
With your experience, have you run into circumstances where most of the time that that’s a reasonable thing? In your experience, is it very difficult to sell a house for, what we would term, a fair value, but others might say that that’s not potential value?
Dan Flack: Right. And with the state, the first thing they look at when looking at the value is the county appraisal, which we all know is not real. But then the next best thing, and really the best thing, you can provide them to prove their market value is an appraisal from a licensed appraiser. So yes, certainly if there’s a house that’s got mold or foundation work needed, a new roof, you can certainly, if you provide from a licensed appraiser an appraised value on the house showing that it’s worth what you got, that’s accepted 100% of the time.
The other thing that we sometimes will get, is just a letter from a real estate agent who’s in the area that said, “I’ve looked at the house. Based on the current market, the condition of the house, this is what I think it would sell for.” They’ll usually accept that as well, but it’s it’s a step below the appraiser.
Ben Souchek: Yes, I would tend to agree with that. And that’s what we’ve tried to do in the past or have done, I should say, in the past, is have a local real estate agent to pull comparables so that they can see what we’re looking at from a potential market value in that area. And then with documentation to show them that, look, it has a kitchen that’s 40 years old and bathrooms that are 30 to 40 years old and any structural damage that house might have to justify our pricing or the values therefore.
Dan Flack: Yes, and I would even go so far as to say if the house current value would be, just to make up an example of $100,000, and that’s because the kitchen’s old or let’s say the roof needs repair. Well, maybe if you put $5,000 into the roof, you can get another $10,000 out of the house. Well, you could give that house away to a child. You would have the penalty because of the value before that roof was fixed. That child could then put the $5,000 into the roof, get the full $10,000 extra. That’s $5,000 bonus. Or even sell it to a child at the current appraised fair market value. They put a little into it, get more out of it.
Are There Differences With Medicaid From Kansas To Missouri?
Ben Souchek: This is probably a broad question here, but since you have offices on both the Kansas side and the Missouri side, we work on both sides as well in the Kansas City Metro Area, are there big differences from Kansas to Missouri? Or since it’s a somewhat of a federal program, are they pretty similar to the way that people would look at this?
Dan Flack: Well, Medicaid is a joint federal state program. What they do is there’s a federal kind of a guideline, a framework, that the states have to work within, but they do have a fair amount of leeway within that framework. There are differences between the two states that can be significant.
Just as an example, in Kansas when you’ve got a married couple, if you’re applying for one in the care center, the IRAs owned by the at-home spouse are exempt and do not count. In Missouri, those IRAs count.
As far as real estate goes, the biggest difference is just more on how picky they are. For example, they will exempt a house that is for sale or really any real estate that’s for sale. In Kansas, you stick a for sale sign in the yard, take a picture of it, you’re done. In Missouri, they need to see that you’ve got a deal, you’ve marketed it, you show what you’re asking for it. They just get into a lot more detail about what they want to see on it.
Same thing with income-producing property. In Kansas, they’re not as picky. In Missouri, it has to be earning a certain amount of return. It’s 6% right now annually on the fair market value of the property.
Can A Seller Accept Monthly Payments When They Sell A House
Ben Souchek: Typically when we make an offer to a home seller, we make more than one, especially if they have a good amount of equity in a house. Some of the ways that we can benefit a seller is, most companies that buy houses at least to my knowledge will only offer a one cash offer, just a one lump sum cash offer.
And in our case, we can make them that offer, of course, but we can also make them typically a much higher overall priced offer if it’s easier for us to buy a house. What that translates to is we can make monthly payments to a person to buy that house over time. It easier for us to buy the house, translates into a higher price for that home seller. What we don’t want to do, of course, is create a situation that makes them ineligible for Medicaid down the line. Are there any guidelines that you might have for us or a seller in that situation?
Dan Flack: Yes. There are certain things. What you’ve done essentially is created kind of, for lack of a better term, a promise right now, where you’re agreeing to pay an amount over a set period of time. The biggest concerns there are the length of time over which you’re going to pay have to be within the life expectancy of the individual based on their charts, and it can’t self cancel at death.
And this is something where it really it’s a thing that I say in all of these kinds of interviews or what have you. It’s always best to talk to somebody who practices in this field to make sure what you’re setting up is going to work. Because as you pointed out at the beginning, these things change all the time. They may start saying, “You know what, we’re not going to do that anymore. We’re not going to allow that.”
Right now, that’s not a problem. I don’t see any indications that something like that’s going to change in the future, but they do get very picky about things where you’re getting on the edges of the Medicaid program, if you will, not just their normal, just cut-and-dry things. But yes, as long as right now, as long as you’re within the life expectancy, equal payments over that time and doesn’t self-cancel, you’re on good ground.
Additional Items When Selling A Kansas or Missouri House For Medicaid
First and foremost, the biggest thing when it comes to real estate with the home is just always on the application there is a question about intent to return, you’re always going to check “yes”. Because as I’ve mentioned, it does not have to be realistic. If there was a magic pill and this person had the health and mental capacity they had when they were 20, absolutely they’d want to go home. You’re going to say, “Yes, I’d go home.” That keeps you from at least having to pay those bills, or even not have the money to pay the bills but not get the coverage while you’re selling the property.
And then one other thing, which I won’t go off on a rant, although I could, but as I mentioned, they exempt the home, but they don’t let the person who’s on Medicaid keep any of their income to pay for the home, and there I’m speaking of an individual. When it’s a married couple, the spouse at home is entitled to a certain level of income at a minimum, and sometimes they’ll be able to keep some of the income of the nursing facility spouse to get to that point. But it’s not a very high level. It changes annually but not a very high level.
But when you’re talking about a single individual in a care center, they’re not getting any money to pay for the taxes, the insurance, just keeping utilities on to keep the pipes from freezing and bursting. That’s where it can be tricky. And yes, I think those are the biggest things that trip people up mainly that intend to return always.
How Does Medicaid Work With A Married Couple?
Ben Souchek: And if there is such a thing as a short answer here, Dan, one thing I think he touched on early and then I forgot to follow up with you is, if there are two individuals, married individuals, and one spouse could or should be maybe on Medicaid but the other has and wants to remain in the home, is there a way for that to be possible?
Dan Flack: Yes. I’ll try to give you the short answer because that’s not really, I guess, what this is about, but what they do is it’s a division of assets. And with that they say, at the point where the person went into the hospital or care center, they total the assets at that time. There’s certain minimums and maximums, but general example would be if someone had $150,000, the couple as a whole, in bank accounts, et cetera, and CDs, savings, IRA or retirement accounts, they divide that number in half. If they had 150,000, they can get Medicaid when they’re down at 75,000. They allow that at-home spouse to keep a portion of their funds so that they can continue to live their life and not be broke. And they will also let them keep a minimum amount of income to maintain their lifestyle and go on paying bills.
There are ways to get that money from where you started to where you’re eligible that can be more beneficial than just paying the bills at the care center. You can spend them down easily and quickly paying off a mortgage or paying down on it. Improving the house, as you mentioned, for sale later. Because there, you’re taking cash that’s countable, putting it into the house that’s exempt.
But the biggest thing I would say in all of this is check with someone who knows this Medicaid stuff. If you’ve got someone who is in need of care in a care center in the future, or is already in, it’s never too soon. Our office offers free consultations. You contact us, you call us, use our website www.kcelderlaw.com. We will be happy to go through your situation. You’ll sit down with an attorney for two hours. They’ll go through it in detail, tell you what can be done, what we can do for you, and then you decide if you’d want to hire us. But of course, there are other attorneys in the area that also do this.
But most importantly, check with someone who does Medicaid specifically. One thing that people go to an estate planning attorney and get Medicaid advice from them. Well, they don’t know what latest changes have happened. They don’t do this as their normal practice, so look for that Medicaid part.
Learn More About KC Elder Law
To learn more about KC Elder Law and their services, go to www.KCElderLaw.com. KC Elder Law has offices in Overland Park, KS, Lee’s Summit, MO, and Kearney, MO.
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