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Can I Buy My Mother's House and Then Rent It to Her Without Affecting Her Medicaid Eligibility?

  • March 3rd, 2016
My 78-year-old mother wanted to gift her house to me, but I turned her down for Medicaid and tax reasons. She is maxed out on a reverse mortgage, but there is untapped equity of around $50,000. She doesn't want the house to go to the bank or to a Medicaid lien. She still lives in the house and cares for herself, but her health is deteriorating. Is it practical for me to buy the house at fair market value and rent it back to her? The net proceeds would cover a fair market value lease for maybe six years. Her goal is to keep the house in the family, and spend down her assets. Whatever we do, I want an arm's-length transaction for her sake and mine. Any feedback will be appreciated.

Yes, the transaction you describe will work. If you can substantiate the fair market value, Medicaid will not penalize the sale. As part of the process, you will have to pay off the reverse mortgage. Your mother will receive the $50,000 differential between the reverse mortgage and the fair market value. And she can pay you fair market rent, which you will also have to substantiate. The question you will have to consider is what happens when your mother runs through the $50,000 and has no more money to pay you or her other expenses.

For more information about Medicaid planning, click here.

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Last Modified: 03/03/2016

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