But the bold is not true, is it? They did indeed have assets: House A, for starters, plus House B.
What is the fair market value of House A? What is the fair market rental rate of House A?
In general, Medicaid won't seize a house, but owning a house can keep the applicant from qualifying for Medicaid in certain circumstances.
But Child 1 has
not inherited House A, has he? Your friend isn't dead yet. Who owns your friend's dead husband's interest in the house? Did it pass to your friend such that your friend owns 100% of the house?
I assume your friend owns House A by herself (no one else has an interest). The house is a rental - she is renting it out to Child 1 for $0 per month, which is far less than the fair market rental value.
From an economic perspective, your friend has imputed rent on House A, and that imputed rent, if collected as cash, would likely disqualify her from Medicaid. Remember, being on Medicaid is being on the Public Dole and is reserved for the indigent, and in fact your friend is not indigent. It is the same as your friend making a gift to Child 1 in the amount of the fair market rent that she is forgiving.
From a moral perspective,
why should Medicaid kick in when your friend is voluntarily gifting Child 1 $XXX per month in the form of forgiven rent? Let's say the fair market rental is, just to pick a number, $3,000 per month. That's $36,000 per year your friend is gifting Child 1. If the fair market rental is $4,000 per month, that's $48,000 per year your friend is gifting Child 1.
Moreover, that's $36,000 or $48,000 per year, in my hypothetical, that your friend should collect as rent and file a Federal Income Tax return showing that income, and possibly a State Income Tax return as well.
Morally,
why should Medicaid pay for your friend's health care when she has that much money that could be applied to health insurance?
That seems to be irrelevant to the question of your friend, rental income from House A, and Medicaid.
But the husband is dead. That asset, House B, should have been distributed according to the Husband's Will. It belongs to someone who is alive (or perhaps to a trust, if there was one - but it seems unlikely).
Did your friend or her husband establish a "Disability Trust" for the benefit of disabled Child B (I think you were using numbering, so Child 2)?
But today, who owns House B? The dead husband doesn't own it any more. Someone owns it. Perhaps your friend, as the surviving spouse, owns it. Perhaps not. Only about a third of all states have laws specifying that assets owned by the deceased are automatically inherited by the surviving spouse. In the remaining states, the surviving spouse may inherit between one-third and one-half of the assets, with the remainder divided among surviving children, if applicable.
What did the Will state? Or did the husband die without a will? SOMEONE owns each house. It seems most likely your friend owns 100% of House A, and possibly 100% of House B.
Yikes What a mess.
Child 2 appears to be paying the mortgage on a house he does not own. That is a gift to the mother, and there are economic and (potentially) tax consequences of a material gift.
BUT WHO OWNS HOUSE B????
Since your friend owns House A free and clear, she could hypothetically go live in House A. After all, she owns it, right? She could, if she chose, allow Child 1 to share the house. She should claim the Master Bedroom. She could allow Child 1 and grandkids to live in the guest bedroom(s). And Child 1 could be charged rent, which could fund her medical insurance. Or Child 1 could move out altogether and stand on his own two feet.
But Child 2 is NOT paying for "his house" because Child 2 doesn't own House B, does he? Or does he??? The deceased husband
used to own 100% of House B, but ownership passed to SOMEONE when he died. To whom? As mentioned above, it might vary by state if there was no will.
Let's say your House B is 100% owned by your friend (quite possible depending on the state). In that scenario, Child 2 is paying the mortgage on a house he does not own. That is a GIFT to his mother (your friend). Have gift tax forms been filed with the IRS?
Economic life is about choices. Of course Child 1, from a purely economic perspective, likes the status quo: free rent and then some.
But the Public should not assist via placing your friend - the owner - on Medicaid (The Public Dole) simply because Child 1 finds it inconvenient to alter his lifestyle. Your friend has valuable assets (100% of House A and possibly 100% of House B) and, as a landlord, has rental income she should be collecting but instead is forgiving.
What evidence there is an implicit threat of cutting off contact? Has Child 1 or Child 1's spouses said anything? Or is it just a general fear without data?
What a mess.
No, Child 1
might inherit his mother's (your friend's) house. Your friend might, for example, write a will leaving House A to
you, otterhere. Or to the American Cancer Society. Or - stay with me here -
your friend could place House A into a trust for the benefit of disabled Child 2. If she were to do so, the income from that trust could help fund disabled Child 2's life.
BUT -- who actually owns House B today??? Does your friend own it?
Under the scenario where your friend actually owns House B today, your friend can leave House B to disabled Child 2, who then would be responsible for paying the mortgage holder. Yes, there is a mortgage, but that's a different issue from ownership.
Fairness is in the eye of the beholder. There's an old saying, a fair is a place where farmers and ranchers showcase their prized pumpkins and livestock.
Nor should she. She appears to own House A free and clear. She probably owns 100% of House B, even though it has a mortgage -- and she should be collecting rent on both House A and House B.
I think you are making a wise decision. Good for you.
My view is she should do her best to provide for disabled Child 2. There are things called disability trusts aka special needs trusts. With the run up in real estate prices, it is possible House A, which she owns free and clear, could easily be worth a half million dollars or more. Between House A and House B,
your friend could be a millionaire. Put into a disability trust for the benefit of disabled Child 2, the income from that could help Child 2's life.
But of course, I don't get a vote.
There's an old joke:
"How many psychiatrists does it take to screw in a light bulb?
Just one, but the light bulb has to be willing to change.".
It sounds like your friend doesn't want to change. Not much you can do.
But The taxpaying public should NOT fund Medicaid for her because she has significant assets.
My question now is: is this reportable elder abuse on the part of Child 1 over House A? And can you see me trying to explain this on some whistleblower hotline???