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Often we are working with our clients to attain Medicaid eligibility. Medicaid is especially important in the context of skilled nursing; because of the expense involved and the benefit available for institutional care through Medicaid. However, if you or your loved one needs care in the home or in an assisted living facility, the Medicaid benefits are not widely available. In those settings, it might make sense to re-distribute assets to invest in, or retain, real property which could be rented out to provide higher income. The concept is to invest assets in property which could produce monthly income. The assisted living facility or home care needs will also be billing on a monthly basis. Let’s take an example:

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Ed needs assisted living to help with his mobility issues and help to keep him safe. His monthly cost will be $3750 at the facility. He has other expenses of $1490, including his health insurance and upkeep on his car. His total monthly spending will be $5240. He gets Social Security of $1950, and a pension of $1575. He also is taking out $690 monthly from his IRA accounts. Therefore, he will be $1000 short monthly once he moves into the facility. He has investable assets (besides his IRA) of a little over $200,000. Rather than leave it in mutual funds or low-interest cd’s, Ed can invest $190,000 to buy a 3 bedroom, single-family home. He can then rent out the home for $3300 per month. After set-asides for taxes and insurance, and allowing for a management fee to a rental agent, he will clear $1000 per month from the rental. This will close Ed’s budget gap and provide him with his monthly needs.

Another benefit is the treatment for Medicaid. If Ed declines further and needs skilled care in a nursing home, the income producing property will not have to be liquidated. The monthly income will be applied to cover part of the cost of his care, but the asset itself can remain in Ed’s name and eventually pass to his heirs. (In Florida and most states, rental property will not be exempt from estate recovery. Therefore, a Medicaid lien would attach to the property, unless the property is structured with an enhanced life estate deed.).