Buying property from motivated sellers..sellers nervous about affecting income taxes, medicaid, etc???

Question

Hey guys and gals, anyone know the laws/rules on medicaid qualifications?  I have a property that a few sisters inherited, that we're close to agreeing on a price.  They're nervous about receiving money that will negatively affect their medicaid status for them and their children.  I'm embarassed to admit this, but since I have never been on medicaid, I don't know the income rules and qualifications.

Also, they're nervous about how this will affect their income taxes for 2012.  It seems they'd like the money--just not pay the taxes :)  I feel the same as them  :)  If they've inherited this property, can't some sort of value be "assumed" at the new basis?  This way they don't show a gain?  In truth, it could even lead to a "loss" for them i think..thoughts??

Account Closed · Answer

Bryan:  Selling an asset and putting cash in the bank will most likely affect their eligibility for Medicaid, even if only for a short while.   For seniors, it can be a huge problem.  That's why there's a law specialty called Elder Law and advises people about transferring and spending down their assets.

I've worked with several seniors and families receiving Medicaid.  There are lots of things to consider (are they seniors, is it anybody's primary residence, are any of their adult children disabled, etc).  To be honest, I think you should give them no information.  Tell them that they need to consult with a tax professional about their taxes, and talk to their social worker about Medicaid.  You could end up unintentionally misleading or misinforming them by suggesting anything else.  Not personal, just a fact in that taxes and Medicaid are technical.  I also suggest that your purchase agreement include a clause that says that the sellers understand and agree that you advised them to seek tax and legal advice.

This is actually one of my purchase niches, and there are times when you can be of assistance with these issues.  But without more experience and less variables (multiple owners), this doesn't look like a good one to cut your teeth on.  :)

Jon Holdman · Answer

K. Marie Poe is probably more versed in this than me, so heed her advice.    But the fact they have this asset is an issue for medicare, period.  Selling it and converting a piece of real estate into cash changes the form of the asset, but not their net worth.  If they have issues with cash, they have issues with owning the house.  The house may just be more difficult for medicaid to find, especially if its still in the mother's name.

When you inherit an asset like a house, you take it over at the basis on the date when it was inherited.  IIRC there was an exception in 2010(?), but typically, the new owner's basis is established at the date of death.  If they sell for that price or less, then they would have no gain and no taxes on the gain.  They may well have a loss, though if they're eligible for medicare its unlikely they can make much use of that.

Medicare does a five year look back when there is a question of eligibility.  So, if there is something about this transaction (or the inheritance) that causes them to become ineligible, its my understanding Medicare has five years to figure it out.

Account Closed · Answer

Jon Holdman and K. Marie Poe, thanks again for yalls interest and help...i guess i should run through the whole story...the mother passed away in 2009.  since then, taxes and mortgage has not been paid..mortgage was originiated in 1981 so it had almost been fully paid off..no foreclosure yet...city and county taxes as wel haven't been paid since 2010.  house is currently on the demo list and i have 6 weeks to fix up property.  luckily, i've worked with this code inspector before so we have a good relationship.  i've been working on finding the daughters for 3 or 4 months now, and i finally found them 2 weeks ago.  so mother passed away, never willed property to anyone.  currently still titled in mother's name...i have a great estate attorney who says he can get clear title as long as family members all agree to come sign docs, which so far they all seem willing to do.  not sure if that is technically probate or not --i bought one house out of probate auction last year, but don't understand the exact legal definition of probate most likely...so there's the run down: house being demolished in 6 weeks when city will slap a huge lien on property, back mortgage payments, back taxes, and also other misc. city liens that add up to a few grand as well....as you can see, i don't think this is a case where the daughters are profitting much, and they seem like they want to sell..we just want to make sure we don't endanger their medicaid..thanks!

Account Closed · Answer

thanks for the comments guys...

K. Marie Poe, i appreciate the advice..i was thinking of offering them money to pay a decent CPA of their choosing to help them prepare their 2011 taxes in adddition to my offer..this could help a bit since they would typically file by themselves or use H&R block..

Jon Holdman, as always, i appreciate your knowledge and feedback.  this house is actually a very unique situation.  i found the house, and located the daughters who didn't know they inherited the property.  it's sat in disrepair for years, and is not much of an asset.

Rob K, i usually appreciate your view point, but in this case, i think it's a little off base..i offered them 12k to split between the 2 of them..hardly a windfall...actually, they seem like 2 working families that struggle to afford health insurance for their families...i want to help them, while getting a good deal of course--not prohibit them from qualifying for a need based program that they truly need

that all being said, and now that yallknow what my offer was, do you think 6k each is enough to screw them up?  any advice?

Account Closed · Answer

Bryan:  You mention that you found the heirs.  Is the property currently in the name of the decedent?  If so, do the heirs have an easy and cheap way to gain title in your state?  Or are you looking at a probate to transfer title?

Even $50 of additional monthly income is enough to screw up Medicaid benefits.  Eligibility and benefits are based on income.  Medicaid covers all or most costs for low to no income families and individuals.  Say you make $700/mo and it's determined that you qualify for 0 share of costs (0 out of pocket).  If your income changes from $700/mo to $2500/mo because you sold an asset or made some holiday money (and assuming it's reported), the recipient's share of medical costs for that month is every dollar over a certain amount (calculated on cost of living and housing for the area). No big deal if you don't have any costs.  Very big deal if you or family members have an ongoing medical condition with costs covered by Medicaid.

Account Closed · Answer

Jon Holdman  I'm going to assume you meant Medicaid throughout your post, because I know you that you know that Medicare is not an income/needs based program and is not at issue here.  I'm going to chalk it up to an election and media hangover.  Medicare was sometimes lumped together liberal social programs.  But it's all better now. :)

Not to confuse things too much, but you can inherit a house and not have it affect Medicaid eligibility.  For example, a Medicaid recipient's primary residence is exempt from Medicaid eligibility and can be gifted away without detriment and without regard to the look back.  But like I said, there's too many variables for the OP to advise his sellers.

Jon Holdman · Answer

K. Marie PoeActually you can attribute it to my crummy spelling and Safari's bias (apparently) toward "medicare" over "medicaid".  Yes, I meant medicaid throughout.  I'm aware of the difference between the two.

Bryan A. if they were unaware of the inheritance, is probate involved?

Rob K one of my cats is not only a stray but an actual feral cat my wife caught, shivering, in the cold.  Politics is for the off-topic forum, please keep it there.

Rob K. · Answer

Isn't medicaid a form of welfare? If they have a cash windfall coming in and/or a substantial net worth, they shouldn't be getting a helping hand.

I would put the deal together and give as much thought to their plight as I give to stray cats shivering in the winter. Let them talk to a tax person regarding their handouts. If they lose their meal ticket, you will still get a nice property and the tax payers will have less dependents to take care of. It's a win-win.

Buying property from motivated sellers..sellers nervous about affecting income taxes, medicaid, etc???

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