Buying Second Home, Owner Finance, Medicaid, Tax Implications

[Drew L.]

I am buying a vacation cabin from an elderly family friend, no relation. I have questions how to structure the deal. 

The lady I'm buying from does not have much income, retired teacher and they made some choices early in the retirement that have left her with little of her pension left (~16k per year).  She owns (outright) her primary residence and the vacation cabin (what I'm buying).  The cabin was never a rental, and the basis is $25k in 1986.  We have agreed on an $80k purchase price, including the boat slip (private property, not real estate).  The reason for the sale is to provide her a monthly income while still providing some occasional access to her daughter.  We are all good friends and having the occasional access is not a problem for us.  

We will be owner financing the deal, she doesn't want to pay the upfront capital gains, and it is a good deal for me.  She would like the terms of the financing to role to the daughter when she passes.  She nor her daughter are disciplined with money, so this monthly payment structure is preferred by them both. 

She isn't on medicaid assistance now, and is in good health for 82 years old - but you never know.   I am worried about the look back period should something happen and she goes to a retirement home. 

Now my question, How do I structure the deal to protect all parties and keep our deal's goals intact? (Monthly income for her, protect me from medicaid liens, keep her eligible for Medicaid, TOD the loan to daughter)

We were going to do a transfer of property with a warranty deed (I'll do a title search and insurance) and on the outside of the deal would be a personal loan for the purchase price.  I want to protect myself and leave her eligible for benefits of the time comes. Any insight would be appreciated.

Thank you.