Dad and Aunt Living Together and Dad Needs Medicaid – Now What? (Part 1)

George had been looking in on his dad and his Aunt Harriet for years.  They had been living together for at least 20 years, ever since his mother died, when Dad moved into Harriet’s home.  Now Dad was in rapidly declining health and would need nursing home care and Medicaid pretty soon.  I asked about Dad’s assets and that’s when George went into some detail about the house.

George explained that about 15 years ago Harriet had creditor problems so she transferred the home to Dad.  He was concerned that now Medicaid would take the home.  I explained that as long as a family member remained living there New Jersey Medicaid would not force the sale of the home.  Dad could qualify for Medicaid and Harriet could continue to live there.  When he died, however, New Jersey, under its estate recovery laws, would place a lien on the home.

I asked George about his Dad’s will.  He told me that the will does leave the house to Harriet.  I explained that should she survive his dad, Harriet would inherit the home.  But, she would need to pay New Jersey inheritance tax as a sibling.  I estimated the tax would be somewhere in the neighborhood of $50,000.  George told me that Harriet did not have more than $20,000 in the bank and did not have the funds to pay this tax, which would accrue interest at 10% per year if it remained unpaid.

I could tell that George was getting stressed out.  “What happens when Harriet needs care”, he asked me.  “I am concerned that New Jersey’s Medicaid lien and inheritance taxes and the closing costs from selling the home will leave Harriet with nothing.”

I told George not to worry.  I had a solution.  Next week I’ll share it with you.