When it comes time to receive long-term care, whether at home, assisted living, or in a nursing home, most people find they cannot afford to pay for care out of pocket for very long, especially for nursing home care. Even a semi-private room can cost in excess of $100,000 per year. Fortunately Medicaid, also known as Medical Assistance in Michigan, can step in to help. But in order to be eligible for assistance, an applicant’s assets and income cannot exceed certain levels.
To the extent that an applicant’s assets that are “countable” for Medicaid purposes exceed the allowable amount, they must be “spent down” until they reach a level at which the applicant is financially eligible for Medicaid assistance. Each state sets its own levels of allowable income and assets.
Upon learning of the need to “spend down” assets, many people immediately think of making gifts to family or friends. Unfortunately, the government is several steps ahead of those people: Medicaid has a five year “look-back” rule for gifts and transfers. If assets were transferred for less than their fair market value during that time period, the applicant who transferred them may be ineligible for Medicaid.
There are, however, permissible ways to spend down assets so that you will be eligible for Medicaid assistance when you need it most.
Understanding Medicaid Asset Spend Down
All states require Medicaid applicants to spend down assets to a certain level to qualify for assistance. An applicant is permitted $2,000 in countable assets in most states, including Michigan. The operative word there is “countable.” Not all assets are “countable” for purposes of Medicaid eligibility. Assets that are counted when determining eligibility for Medicaid include:
- Savings or checking accounts at a bank or credit union
- Investments, including stocks and bonds
- Individual Retirement Accounts (IRAs)
- Real estate other than one’s primary home
Your primary home is exempt, or non-countable, if you live there or have intent to live there again in the future, so long as your equity interest in the home is not greater than $603,000 in 2021 (this figure changes annually). Your primary residence is also exempt if your spouse continues to reside there. Other exempt property includes an automobile, prepaid burial expenses, and irrevocable trusts.
It is possible to reduce countable assets by converting them into non-countable assets. Typically, this involves using money from bank accounts to purchase non-countable assets or pay down debt on non-countable assets. Permissible ways to spend down countable assets include:
- Paying off accrued debt, such as mortgages, personal and vehicle loans, and credit card balances;
- Purchasing medical devices, such as dentures, that are necessary and not covered by insurance;
- Paying for repairs or modifications to an existing home to improve safety and accessibility. These modifications can include building a first-floor bedroom or bathroom for adults with mobility problems;
- Repairing a personal vehicle, or selling a vehicle at fair market value and purchasing another one to replace it;
- Purchasing certain annuities;
- Purchasing irrevocable funeral trusts to pay for funeral and burial expenses;
- Purchasing life insurance policies with a combined face value of $1,500 or less;
- Creating an agreement with a family member or friend to provide needed personal care to the application in exchange for compensation. Such “life care agreements” should be drafted by an elder law attorney to be certain they do not violate the Medicaid “look back” rule.
The Community Spouse Resource Allowance (CSRA)
What happens if one spouse needs care that depends on Medicaid, but the other spouse doesn’t? Must the other spouse spend down all their assets as well? Fortunately, the answer to that question is “no.” When only one spouse needs institutional (nursing home) Medicaid or home and community based services through a Medicaid waiver, the other spouse is called the “community spouse.” The community spouse is entitled to something called the Community Spouse Resource Allowance, or CSRA.
As of 2021, the CSRA allows the community spouse to keep up to half of the assets they own jointly with their spouse, up to a maximum of $130,380. For couples with limited resources, the community spouse may be able to keep up to 100% of the couple’s joint assets, up to a maximum of $26,076.
Medicaid spend down can be complicated, and making an error could result in a period of ineligibility when you or your spouse can least afford it. If you have been told you have to spend down for Medicaid, you should seek the help of an experienced professional to ensure your efforts help, rather than harm, your cause.
If spending down is not enough to qualify for Medicaid, or if the above ways are not desired, there are other methods available to preserve your assets under the Medicaid rules. These include, but are not limited to:
- an asset conversion plan
- a controlled gifting plan, which our firm calls its Gift Plus Planning™ program;
- use of actuarially sound, Medicaid compliant annuities;
- use of specialized trusts, such as Medicaid Exception A or B trusts, a “sole benefit,” or SBO trust, an irrevocable divestment trust, and other types of trusts;
- Maximizing spousal asset and income allowances, including the CRSA with use of a living trust.
The assistance of an experienced Medicaid planning attorney can preserve assets for your family while ensuring you can get the Medicaid assistance you may someday need. Please contact our law office to schedule a consultation.