Many of your senior clients who want to apply for Medicaid Long Term Care may have assets or income over the Medicaid limits in their state. And many of them will be relieved to hear they can still qualify for Medicaid by ?spending down? their excess assets. Spend down is a common Medicaid planning strategy, and some aspects of spend down are fairly straightforward. However, there are nuances, variations between states and certain aspects that can be complicated. With that in mind, here?s a comprehensive look at Medicaid spend down that digs into the details concerning relevant topics such as Community Spouse Resource Allowances, the Look-Back Period and Medicaid-Compliant Annuities.
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Asset Limits and the Community Spouse Resource Allowance
Medicaid Long Term Care applicants with excess assets need to reduce those assets to meet their asset limit. As you know, asset limits vary by state, type of Medicaid Long Term Care program and marital status. And as of Jan. 1 2024, there will be no Medicaid asset limit in California, so asset spend down will be irrelevant for Medi-Cal (California Medicaid) applicants after that date.
In most states in 2023, the individual asset limit for all three types of Medicaid Long Term Care relevant to seniors ? Nursing Home Medicaid, Home and Community Based Services (HCBS) Waivers and Aged, Blind and Disabled (ABD) Medicaid ? is $2,000, and for married couples with both spouses applying it?s $3,000 or $4,000. As you also know, these limits do vary by state ? the 2023 individual asset limit in New York, for example, is $30,812.
For married couples with just one spouse applying for Nursing Home Medicaid or HCBS Waivers, the 2023 asset limit in most states is $2,000 for the applicant spouse, and for the non-applicant spouse it?s $148,620, which is the Maximum Community Spouse Resource Allowance (CSRA) for 2023. However, not all states use that figure ? the Maximum CSRA in Illinois, for example, is $120,780.
States also have the option of being 50% or 100% when it comes to the CSRA. In 50% states, the non-applicant spouse (also called the community spouse) is only allowed to keep half of the couple?s assets up to $148,620 (or whatever the maximum CSRA is in that state). These 50% states also use a Minimum CSRA, which is $29,724 in most states in 2023. If half of the couple?s assets are less than that, the community spouse is allowed to keep $29,724, even if that is more than 50% of the couples combined assets. In 100% states, the community spouse is allowed to keep all of the couple?s assets up to the Maximum CSRA.
There is no CSRA for married couples with just one spouse applying for ABD Medicaid. All of the couple?s assets are considered jointly owned in these circumstances and will be counted toward the asset limit of the applicant spouse. The asset limit for married couples applying for ABD Medicaid is $3,000 in most states in 2023.
Activos Contables vs. Exentos
There?s no need for your clients to spend down their exempt assets since they do not count against the asset limit. For most Medicaid applicants who are homeowners, their primary home will be exempt from the asset limit as long as it?s home equity interest is below the state limit, which is either $688,000 or $1,033,000 in 2023 with just four exceptions: California (no home equity interest limit) and Idaho, Maine and Wisconsin (all have a $750,000 limit). Remember, home equity interest is the portion of the home?s equity value that the applicant owns, and the home?s equity value is the current value of the home minus any outstanding mortgage or debt against the home. For more on home ownership and Medicaid Long Term Care, click here.
Other exempt assets can include:
? Household appliances
? Household furniture
? Primary vehicle
? Personal items (such as clothing and engagement / wedding rings)
? Term life insurance policies valued below $1,500
? Irrevocable funeral trusts
? Medicaid Compliant Annuities
Countable assets are, essentially, liquid assets, so anything that can be easily converted into cash. These include checking and savings accounts, mutual funds, stocks, bonds, vacation homes and most life insurance policies.
Retirement accounts need their own category. IRAs and 401(k)s that belong to the Medicaid applicant or their spouse are countable under most circumstances, but it depends on the payout status and state. It?s important to note that monthly payouts from retirement accounts that are in payout status will count against the income limit. For more on how Medicaid treats retirement accounts, click here.
Asset Spend Down Process
Your clients must follow certain rules and restrictions when spending down their assets, but these rules do offer a range of options.
One of the most important restrictions to understand when it comes to asset spend down is the Look-Back Period. As you?re probably aware, the Look-Back Period is five years in most states, with the exception of California (2.5-year Look-Back Period) and New York (2.5-year Look-Back Period for HCBS Waivers, five years for Nursing Home Medicaid and ABD Medicaid). This means that the state official reviewing your client?s application will look back into their financial records (which must be supplied with the application) for the five years prior to their application date to make sure they have not simply given away their assets, or sold them at less than fair market value, to become Medicaid eligible. For more information on the Look-Back Period, click here.
The Look-Back Period does not have much impact on asset spend down beyond preventing applicants from giving away their assets or selling them at less than fair market value. Your clients can spend down their assets during the Look-Back Period on a wide range of good and services without breaking any rules, with one important caveat ? they can only purchase goods and services for themselves. So, just because they are allowed to spend down assets on a vacation for themselves, they can?t pay for their grandchildren (or anyone else) to join them on that vacation.
With that caveat in mind, here are some ways Medicaid applicants can spend down their assets:
? Home modifications for safety and accessibility: This includes modifications like adding wheelchair ramps, widening doorways and installing bathroom grab bars.
? Medical equipment: Purchasing medical goods that are not covered by insurance, like hearing aids, glasses, certain prescription medications or over-the-counter supplements, can be used for asset spend down.
? Medical care: Spending on medical care not covered by insurance, such as drug and alcohol treatment or certain types of therapies, is allowable for asset spend down.
? Personal Care / Life Care Agreements: Your clients can spend down assets by paying in advance for in-home caregiving by coming to terms on a Medicaid-approved Personal Care Agreement, which is also known as a Life Care Agreement.
? Irrevocable Funeral Trusts: Your clients can pay in advance for their funeral or burial expenses, and reduce their countable assets, by purchasing an Irrevocable Funeral Trust. The value cap on this type of asset spend down is $15,000 in most states.
? Paying off debt: Reducing accrued debt such as mortgages, car loans and credit card bills is an allowable form of asset spend down, as long as the debt belongs to the Medicaid applicant or their spouse.
? Vehicle repairs or sales: Fixing a primary vehicle, or selling it to purchase a new one, is an allowable form of asset spend down.
? Vacations, travel, etc.: Medicaid applicants and their spouses can spend down their assets by taking vacations, traveling, going to the theater or paying for any other kind of experience. Again, they can only spend in this way on themselves, and they should not buy vacation homes, RVs or any kind of luxury item because they will be considered countable assets.
Medicaid Compliant Annuities
Purchasing a Medicaid Compliant Annuity is a common way to spend down assets, but it violates the Look-Back Period. So, your clients can purchase a Medicaid Compliant Annuity to reduce their assets, but they must do it prior to the Look-Back Period in their state. It?s important to note that the income stream produced by that Medicaid Compliant Annuity will be counted against Medicaid?s income limit. The rules can vary by state, but in general annuities must irrevocable, immediate, fixed, non-transferable and actuarially sound to be Medicaid compliant, and they must pay back the annuitant the complete original price of the annuity, and they have to name the state as the beneficiary. Learn more about Medicaid Compliant Annuities here.