HOW TO QUALIFY FOR MEDICAID?
There are many weapons and strategies which we can use to qualify clients for Medicaid. Every client’s situation is different. It depends on a client’s assets, the client’s health, the time available to plan, whether the client is married or single, whether the client has family to support, or whether the client owns a home or rents.
Here are Just a Few Strategies:
Essentially, “spend down” is nothing more than spending one’s money until the appropriate asset limit is reached to qualify for Medicaid. Applicants and their spouses can protect and preserve their savings by spending them on “noncountable” assets such as paying down a mortgage, updating home furnishings, making home repairs, funding a funeral trust, buying a new home or purchasing a new car.
It is important, however, to understand that different rules apply to married couples than apply to individuals. Married couples have various exemptions and allowances that single people do not have. It is important to consider the timing of when a couple decides to spend down assets, because if assets are spent before the individual enters a nursing home (the “snap shot” date), this could lower the spousal resource allowance. For example, Bob is living at home. His wife, Mary, is in a nursing home. They have cash assets of $175,000, a home and a car. The home and car are “exempt” assets. Mary is qualified for Medicaid in every other way. Application for Medicaid benefits is submitted, and Medicaid informs Bob that he may retain $117,240.00 as his maximum spousal allowance (in some states this amount would be half of Bob’s and Mary’s cash assets or $87,500). The balance of $57,760.00 is attributed to Mary, and because it exceeds the resource limit she is not qualified for Medicaid benefits. However, she can spend down her portion for medical care to $2,000 ($55,760.00). When consumed, she will qualify for benefits. Bob still has his $117,240.00 even though Mary is now on Medicaid. If Bob and Mary had spent their savings reducing it to say $80,000, then Bob’s resource allowance would be $80,000.
While “spend down” is the disposition of assets to qualify for Medicaid, it does not have to be the systematic spending for the sake of getting rid of money nor does it need to be money spent on medical care or nursing care. For a couple, disposition may mean conversion of assets from “countable” to “exempt” or “noncountable” status. One example of conversion from “countable” to “exempt” is the purchase of a funeral for the institutionalized spouse. The funds used for this purchase would, if not so used, have to be spent on something else (and the family would still have to purchase a funeral. If the parent’s funds were not used for this purpose, the children would be forced to use their own funds and the advantage of conversion would be lost). By converting the funds to “exempt” status they are protected from “spend down.”
Purchase an Immediate Annuity
Where the healthy spouse has a high income, he or she may be able to transform savings from “countable” assets into “noncountable” income by using the funds to purchase an annuity. Except in the case of clients with substantial savings, the purchasing of an annuity should wait until the unhealthy spouse moves to a nursing home. Essentially, an immediate annuity is a contract with an insurance company under which the consumer pays a fixed certain sum of money to the insurance company and the company sends the consumer a monthly check for the rest of his or her life. In most states the purchase of an annuity is not considered to be a transfer for purposes of eligibility for Medicaid, but is instead the purchase of an investment.
Let’s look at an example. Bob is living at home. His wife, Mary, is in a nursing home. They have cash assets of $175,000, a home and a car. The home and car are “exempt” assets. Mary can have up to $2,000.00 titled in her name and is qualified for Medicaid in every other way. The most money Bob can keep for himself and still have Mary qualify according to Massachusetts Medicaid law is $117,240.00 (maximum resource allowance). Because Bob has more than the allowable amount, he can take the difference of $55,760.00 and purchase an annuity, making his wife in the nursing home immediately eligible for Medicaid. He would continue to receive the annuity check each month for the rest of his life. But issues can arise disqualifying Mary if Bob were to predecease Mary leaving behind an annuity and not taking the additional precautions, which a qualified elder law attorney such as Attorney Jaffarian can discuss with you.
There are revocable trusts and irrevocable trusts. Revocable trusts can be changed anytime after their creation and have no practical use in planning for Medicaid. Irrevocable cannot be changed and although far more restrictive, are often used in Medicaid planning. Essentially, the Grantor (the person establishing the trust) places assets into a trust, which are managed by a Trustee. As Grantor, you may not touch the principal, but you are entitled to the income. The principal is transferred to your beneficiaries on your death. For Medicaid purposes, the principal is not a “countable” asset, which allows you to protect it from being counted for Medicaid purposes.
An advantage of these trusts is that if they contain property that has increased in value, such as real estate or stock, the Grantor can retain a “special testamentary power of appointment” so that the beneficiaries receive the property with a “step-up” in basis at the death of the Grantor. This will also prevent the need to file a gift tax return upon the funding of the trust.
Durable Power of Attorney
Often times when an ill spouse is about to enter a nursing home, it is important to get that spouse’s name off the title to certain types of property, such as the family home thereby reducing his or her assets and protecting the house from lien recovery in the future. A durable power of attorney provides a method to transfer assets between spouses when one spouse is unable to act for him or herself.
Testamentary trusts are created from a will and have a special “safe harbor” treatment when established by a deceased person for the benefit of a surviving spouse. It is a way for a healthy spouse to provide assets to an institutionalized spouse without adversely affecting the institutionalized spouse’s eligibility for Medicaid.