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Can the Pa. welfare recovery take the money prior to her death or can she gift the money from the sale of her house. She is still sound of mind.

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She cannot gift anything. The proceeds from the house have to be reported to Medicaid who will stop payments to her until she has spent it down to less than $2000. Talk this over with the attorney handling the sale of the house so you don't make a costly error.
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Also if you or others are putting up $ to get the house market ready or paying for things on the property, you need to get an legal signed off agreement between your aunt & you as to those exact costs being owed to you from the proceeds of the sale of the home. You will have to clearly document all costs too. Otherwise all the proceeds from the sale to your aunt goes to the state. The realtors, title company etc have their $ removed within the sale, so they get theirs. Speak with your realtor as to how to deal with this. You may have to file a workmans lien on the house at the courthouse to get your $. Often family just spends whatever without reinbusrement.
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The proceeds from the sale of the house will have to be used for your Aunt's nursing home care. There is no way around it since she is on Medicaid.
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Medicaid requires that any & all assets be used for her care or to reimburse the state for payments made to the NH by Medicaid on her behalf. This was within the Medicaid application. It is an "acknowledgement of participation" & neither she or you had to sign off per se to agree for this.

Whether she is of sound mind makes no difference.

You need to let your Realtor know ASAP that mom is on Medicaid and that there could be a cloud (claim or lien) on the property by the state. What often happens is that you get to the point of the sale and the buyer needs to get title insurance ( if they are getting a mortgage they will need title insurance for the bank to lend) and the title company finds the states claim or lien. Title insurance cannot be issued till settlement of this cloud is done so the sale falls through. Buyer can seek redress from seller too for lost opportunity or costs incurred. Realtors not happy too. More & more title companies are dealing with this and some require either a notarized statement by the seller or an indemnity from sellers over 55 before title insurance issued due to Medicaid's required claim or lien on assets. There is a really good article that explains all this.....google "Texas Stargazer MERP".

I'd suggest you contact your parents Medicaid caseworker by letter or fax and clearly ask what the state requires to be done with the proceeds of the sale. And do this ASAP & before you get to an act of sale. Remember all real propert ownership is recoded on the local level by the tax assessor & then dovetailed to the states records. The sale will show up and to the penny.
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