Disclaimer: With Medicaid, VA, and insurance regulations frequently changing, past blog posts may not be presently accurate or relevant. Please contact our office for information on current planning strategies, tips, and how-to's.
Do you have clients who are considering a reverse mortgage? If so, it’s important for you to understand how reverse mortgages can impact Medicaid eligibility so you can advise them accordingly. Let’s explore this estate planning product and discuss some options for using reverse mortgages while still qualifying for benefits.
What is a Reverse Mortgage?
First, let’s take a closer look at reverse mortgages and how they work. Adults who are age 62 or older can utilize a reverse mortgage to convert a portion of equity in their home into cash. With a reverse mortgage, individuals can avoid selling their home and, instead, use up the equity to supplement their living expenses.
How does a reverse mortgage work? While a regular mortgage requires the homeowner to pay the lender every month in order to buy a home, a reverse mortgage is a loan where the lender pays the homeowner. These payments can be seen as an advance payment on the owner’s home equity. In general, they do not have to pay back the money as long as they live in the home. However, when they sell the home or move out, they will be required to repay the loan. If they pass away, their spouse or estate would need to repay it. In many cases, that means selling the home to be able to repay the loan.
Medicaid Eligibility and Reverse Mortgages
Similar to other estate planning products and strategies, a reverse mortgage can impact an individual’s eligibility for Medicaid benefits. The payments from a reverse mortgage are not considered income in most states, but, if left unspent within the month received, the balance will be carried over to the following month, increasing the individual’s total countable assets. That said, some states may consider the reverse mortgage payments as assets in the month they’re received. Check our State Resources page for easy access to your state’s Medicaid manual.
Can a Single Person Qualify for Medicaid with a Reverse Mortgage?
A single person who is looking to utilize a reverse mortgage is subject to a constant Medicaid asset limit of $2,000 in most states, meaning any unspent payments from a reverse mortgage will impact their eligibility for benefits. Plus, if they move out of their home and into a nursing home, they would likely either not qualify for a reverse mortgage or be forced to pay back an existing reverse mortgage.
Can a Married Couple Qualify for Medicaid with a Reverse Mortgage?
Married couples, on the other hand, may be able to take advantage of a reverse mortgage. As long as the community spouse can ensure the payments are payable only to them, they could use a reverse mortgage to supplement their income while maintaining their lifestyle within the community. If the payments are made to both spouses, however, this could affect the institutionalized spouse’s total assets and, thus, their Medicaid eligibility.
Married couples looking to utilize a reverse mortgage must wait until after the institutionalized spouse achieves initial Medicaid eligibility. Although the community spouse must be within the required asset limitations at the time of application, the state Medicaid agency only looks at the institutionalized spouse’s assets going forward. Therefore, once eligibility is achieved, any reverse mortgage payments the community spouse accumulates will not affect their spouse’s eligibility.
Again, once the individual is no longer able to live in their home, they must pay off the mortgage debt. So, if the community spouse expects to require nursing home care in the near future, a reverse mortgage might not be the best option.
As with any Medicaid strategy, we recommend first discussing the impact a reverse mortgage will have on your client’s case with the state Medicaid agency or another elder law attorney in your area.
If you have senior clients who are looking to qualify for Medicaid benefits and you want to better understand their options, we can help. Learn more about our Medicaid Compliant Annuity and contact our office to get started.
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