[WSBAPT] Medicaid Estate Recovery w/Private Refinancing of a Reverse Mortgage & a Tenancy-in-Common Arrangement

[Heather de Vrieze]

Why doesn’t C pay off the mortgage in exchange for an increased equity interest in the house. Using simple math, if the property is worth 500k and the reverse mortgage is $250k, the equity is ½ of the value. If C pays off the mortgage, he should have an equity interest of ½ from repayment of the mortgage and ¼ from his original equity. Now he owns 75% and B 25%, limiting estate recover to that portion that B owns. This might be accomplished with a TIC agreement clarifying that unequal contributions increase the ownership of the paying party while decreasing the ownership of the nonpaying party.

Heather

Heather S. de Vrieze
Attorney-at-Law
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From: wsbapt-bounces at lists.wsbarppt.com <wsbapt-bounces at lists.wsbarppt.com> On Behalf Of David Faber
Sent: Wednesday, May 19, 2021 2:29 PM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com>
Subject: [WSBAPT] Medicaid Estate Recovery w/Private Refinancing of a Reverse Mortgage & a Tenancy-in-Common Arrangement

Can o' worms time:

C's elderly parents' guardian established a trust for the elderly parents, deeded their home to the trust, and reverse mortgaged their home in order to pay for their care (I have no idea why the guardian chose this path instead of turning to medicaid). The reverse mortgage grew to $245k before both elderly parents died. The trust then directed that the house be distributed to C and C's (B)rother, which was completed last month and title is now held by C & B as tenants-in-common.

B is 65 years old, disabled, and on public benefits (medicaid long-term care), and the reverse mortgage is now due and owing. C has resources and wants to pay off the reverse mortgage in order to allow B to remain in the house for the remainder of his life, and because a primary residence is not disqualifying for medicaid, this seems like it will work just fine. C wants to take a Note for the payoff of the reverse mortgage, 15 year amortization but with no installments, 3% per annum interest, and secure the note against title via standard form DOT.

Now, the questions:

(1) Would the Note would have priority over a Medicaid lien for B? C does not want to be on the hook for B's medicaid debt or to lose repayment of the Note.

(2) With B & C tenants-in-common due to inheritance from parents, medicaid estate recovery for B would only apply to half of the remaining equity in the real property, correct?

I just want to make sure that this structure will work. Client wants B to have the support he needs without having to lose the house. Just trying to navigate to the best option available.

Best,
David J. Faber
Faber Feinson PLLC
800 Polk Street, Suite B
Port Townsend, WA 98368
(360) 379-4110

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