Long-term care is extremely expensive, and many Americans rely on Medicaid to pay for it. A Medicaid spend down is a financial strategy used when an individual has too many assets to qualify for Medicaid.
To be accepted into Medicaid, assets (bank accounts, investments, for example) must be spent down or otherwise disposed. (Income cannot be spent down. If the individual is over income limits, they may establish a Qualified Income Trust if they are applying for a long-term care Medicaid waiver.)
Every state has a different asset limit required for an individual to obtain Medicaid benefits. To qualify for Medicaid in Ohio, you cannot have more than $2,000 (for a single person) or $3,000 for a married couple applying together. Spouses of individuals applying for long-term care are permitted to keep a certain amount as a Community Spouse Resource Allowance.
Spend down can be an unattractive proposition for people who have spent their lives building wealth. Yet there are ways to protect your hard-earned assets from Medicaid spend down.
Individuals can give assets to others, typically family members. Gifting for Medicaid purposes, however, requires careful planning. Medicaid has a five-year look-back provision that says any asset transfers must be completed at least five years before applying for Medicaid. For more recent transfers, Medicaid applies a penalty.
There are exceptions to the gifting/transfer rules. Speak with a knowledgeable attorney to learn if any of the exceptions apply to your situation.
Medicaid Asset Protection Trusts
Medicaid asset protection trusts are irrevocable trusts that shield the assets from Medicaid calculations. The downside is you lose control of the assets forever when you place them in the trusts.
A life estate allows you to own property jointly with another individual, typically a spouse. Medicaid treats a transferrable Life Estate as a countable resource in an amount based on a valuation table contained in the Administrative Code. A non-transferrable life estate is not countable, but it is considered an improper transfer if created within the look-back period.
Individuals can purchase Medicaid-compliant annuities that pay for long-term care. These annuities can be used to help one spouse qualify for Medicaid yet provide income for the spouse who does not need Medicaid benefits.
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