Medicaid eligibility can be hurt by asset transfers
Dear Liz: My mom has BP stock. Currently she is moving toward applying for Medicaid to pay for nursing home expenses, and I was advised to put the stock in my name. Now I am watching her stock (and savings) plummet. It’s gone from a $100,000 savings to about $40,000 currently. Do I take it out, or do you think it will come back and I should leave it alone?
Answer: You may want to cash out at least some of the stock to hire a good elder law attorney who can advise you about the Medicaid look-back rules.
These rules are designed to prevent what you seem to be doing, which is trying to hide assets from the government by transferring them away from the potential Medicaid recipient. Medicaid is the government-run healthcare program for the poor, and recipients are supposed to have exhausted their assets before they apply. Any transfers made within five years of applying for Medicaid will delay eligibility.
As for your original question, having more than 10% of one’s assets in a single stock is extremely unwise, and you shouldn’t have any money invested in stocks if you’re likely to need it within the next 10 years. After you’ve consulted with an elder law attorney you might also want to make appointments with a tax pro and a financial planner so your mom can better manage what she has left.
Foreclosure can cripple credit
Dear Liz: My son and daughter-in-law are thinking about walking away from their underwater mortgage. What are the long-term consequences? The house was purchased in 2005 for $577,000 with no down payment. It’s worth $370,000 and they don’t expect values to rebound any time soon.
Answer: A foreclosure would be a major black mark on the couple’s credit reports and probably would reduce their scores to subprime territory (below 620). Recovering from such credit blows is tougher than it was a few years ago, when lenders were still eager to give money to people with shaky credit.
That means your son and his wife could spend several years in credit limbo. They may have trouble renting an apartment, be required to make bigger deposits for utilities and phone service and even (in some states) pay more for insurance. Whether their credit will recover before home prices do, though, is an open question. Typically, negative marks like a foreclosure fall off credit reports after seven years, and credit scores can recover to near-prime levels before that.
A foreclosure also puts borrowers in a kind of penalty box with lenders. They may not be able to get another mortgage for four to five years. If they were to arrange a “short sale” or voluntarily hand over the keys to the bank, rather than waiting for a formal foreclosure, their “penalty box” period could be as short as two years, although they would still suffer significant damage to their scores.
If the couple are having trouble making their mortgage payment, they should contact a housing counselor approved by the Department of Housing and Urban Development (referrals at https://www.hud.gov to review their options and see whether they should try to pursue a mortgage modification to make their payments more affordable. Relatively few homeowners succeed in getting permanent modifications, but it’s certainly worth a try before they walk away.
They should also read attorney Stephen Elias’ book “The Foreclosure Survival Guide” to understand what may lie ahead.
Paying off balance can drop limit
Dear Liz: I had a $9,000 balance on a credit card I’ve held since 1971. This year, I paid it off, and within a week the issuer lowered my credit limit from $10,800 to $750. I never was late or over the limit on this or any other credit card. I know this action will lower my credit scores, since I have less credit available. Why and how can banks get away with treating longtime customers this way? What should I do? I tried going up the chain of command at the issuer and no one cares.
Answer: You weren’t over the limit, but you were very close to your limit, which these days makes risk-shy issuers very, very nervous. The dramatic reduction in your credit limit was the issuer’s way of saying, “Don’t let the door hit you on your way out.” Your loyalty as a customer clearly didn’t mean much to this particular company.
Fortunately, you can find better treatment elsewhere. If your credit scores are good (740 or above), plenty of other issuers will be happy to give you a credit card. Even if they’re not so great, you may find a happy home with a local credit union that issues cards.
Liz Pulliam Weston is the author of the book “Your Credit Score: Your Money and What’s at Stake.” Questions for possible inclusion in her column may be sent to 3940 Laurel Canyon Blvd., No. 238, Studio City, CA 91604, or via the “Contact Liz” form at https://www.asklizweston.com. Distributed by No More Red Inc.
