Q. My wife and I have a Reverse Mortgage on our home. We have already pulled out about $100K on our loan and have another $150K available. If one of us needs nursing home care, will our Reverse Mortgage prevent us from seeking a Medi-Cal subsidy to help with the cost of that care?
A. Not necessarily, but it all depends upon how you handle the loan proceeds from your Reverse Mortgage (“RM”). If you only draw what you need and fully spend those funds on expenses or debt during the same month of that draw, then the RM would not prevent Medi-Cal qualification. The keys are:
(1) to avoid rolling over unspent funds into the next month, and
(2) to be mindful about spending the funds to acquire a non-exempt resource, such as a 2nd vehicle or a second home. To the extent that you use the funds to acquire a non-exempt asset, the value of that acquisition would be added to your countable resources and, if — together — they put you over your Medi-Cal resource cap, you could then lose your Medi-Cal….at least until you later bring your non-exempt resources back down below the cap. Note that the caps have recently been dramatically expanded, so as to make it easier for persons who are over 65 or disabled to qualify for Medi-Cal.
If you still have unspent monies from your RM draw as of the 1st day of the following month, then these unspent funds will be treated as non-exempt property and added to your other non-exempt resources for purposes of determining eligibility. The best plan: draw down only what you need and fully spend it in the same month as received. Note: Your remaining unused line of credit would not count as an available resource, so you are OK there.
HECM For Purchase: There is a newer RM product designed to help seniors sell their existing home and purchase a replacement home. It is called a “HECM For Purchase” or “H4P”. Typically, seniors purchase a replacement home by putting roughly 50% down and use an H4P to pay the balance of the purchase price. As with the traditional RM, the homeowners under the H4P program own their new home without any obligation to make mortgage payments. Likewise, the H4P loan would be due when the seniors sell their home, move out or die. Since the H4P loan would help finance the purchase of an exempt residence, it would not adversely affect Medi-Cal eligibility.
Problem: Loan Due When Home Vacated: When the homeowner vacates the home to move into a care facility, and has been absent from the home for at least 12 months, the RM is due and payable. This can force a sale of the home. If the sale proceeds are more than the amount needed to fully pay the RM loan, the excess is then counted as a resource and could render the homeowner ineligible for Medi-Cal, at least until they are spent down on care. Alternatively, he or she might seek guidance from an Elder Law attorney to implement a transfer or conversion strategy to preserve or restore Medi-Cal eligibility.
Another Problem: Putting Home Into Trust: Under recent legislation, placing a home into a “Living Trust” will usually protect it from Medi-Cal “payback” after the death of the borrower. However, RM lenders may impose special requirements as a condition to allowing the RM loan to remain in effect after the home is placed into trust. So, make sure that you satisfy your lender’s requirements when you originate the RM loan and/or create your trust, so your lawyer can draft the trust in accord and secure the lender’s consent.
In short, if the RM draws are either fully spent in the month of draw or are used to purchase an exempt personal residence, you should be OK. But, plan ahead to deal with anticipated excess sales proceeds when the home is eventually sold to repay the loan.
References: All County Welfare Directors’ Letter No: 08-17 (4/25/2008); Medi-Cal Eligibility Procedures Manual § 9D, including revisions thereof contained in Medi-Cal Eligibility Division Information Letter No: I 20-24 (11/06/2020); 22 CCR § 50483. For SSI purposes, see POMS 01140.300 (Example #3).