How to Spend Down Your Resources and Qualify for Medicaid

Carefully saving money should lead to peace of mind in your later years. But some people worry their savings will prevent them from qualifying for Medicaid. They think they’ll have to spend every dime on healthcare and won’t have anything left to leave their family.

This might happen to you or your loved one, but not with the kind of guidance you’ll get from Eldercare Resource Planning. Our Certified Medicaid Planners know all the ins and outs of Medicaid spend down, a planning strategy that can help seniors maximize their resources, qualify for Medicaid and still save something for their family.

It’s also possible to spend down your income to qualify for Medicaid, but this article is only focused on spending down assets. Contact us to find out more about spending down assets to qualify for Medicaid or keep reading.


Understanding Medicaid’s Asset Limits

Medicaid is intended for people with limited financial resources, so applicants need to meet two financial requirements to qualify – an asset limit and an income limit. The asset limit is most relevant to this article.

In most states in 2024, the asset limit to receive long-term care in a nursing home or in the community via Medicaid is $2,000 for an individual and a combined $3,000 for a married couple with both spouses applying. For married couples with only one spouse applying, the asset limit is $2,000 for the applicant spouse and $154,140 for the non-applicant spouse, thanks to the Community Spouse Resource Allowance (CSRA). All of these dollar amounts can change depending on the state and the type of Medicaid.

In 2024 in Florida, for example, the asset limit for nursing home coverage is $2,000 for an individual and a combined $3,000 for a married couple with both spouses applying, but those limits are $5,000 for an individual and a combined $6,000 for a married couple with both spouses applying for one type of Medicaid that will cover long-term care in the home. In Illinois, the asset limit for all types of Medicaid for both individuals and married couples with both spouses applying is $17,500. In California, there are no asset limits for Medicaid as of Jan. 1, 2024.


Understanding Countable and Exempt Assets

If you live in a state with a $2,000 asset limit, the value of your countable assets must add up to less than $2,000. Most assets are countable when it comes to the Medicaid asset limit, including:

• Bank accounts
• Retirement accounts
• Stocks
• Bonds
• Certificates of deposit
• Vacation homes
• Rental property
• Secondary vehicles
• Jewelry
• Art
• Cash
• Most liquid assets that can be easily converted into cash

However, there are also non-countable or exempt assets. These include:

• Clothing
• Wedding rings
• Household furniture
• Essential appliances
• Term life insurance
• Life insurance policies with a combined cash value less than $1,500
• A primary vehicle
• A primary home (in most cases)

The rules governing a home’s countable or exempt status can be complicated and vary by state. In general, the home will be exempt if the home equity interest is below the state’s limit and the applicant lives in the home or has filed an intent to return home. Home equity interest is the portion of the home’s equity value the applicant owns minus any outstanding mortgage or debt on the home. The home will always be exempt if the applicant has a spouse, minor child or disabled child of any age who is not on a Medicaid and lives in the home, regardless of the home equity interest. Learn more about how owning a home will affect your Medicaid eligibility or contact us to discuss.

It should also be noted that some retirement accounts like IRAs and 401(k)s may also be exempt from Medicaid’s asset limit, depending on the circumstances. In some states, retirement accounts are exempt if they are in payout status. Some states do not count retirement accounts if they are owned by a non-applicant spouse. Some states don’t count retirement accounts at all. And there are other states that mix and match all of these options.

There are other financial products that can be exempt from the asset limit, such as Medicaid Compliant Annuities and Irrevocable Funeral Trusts, and we will discuss those below. Before we get there, however, it’s important to explain Medicaid’s Look-Back Period.


Look-Back Period Basics

To make sure applicants don’t just give away their money or other assets to get under the asset limit and qualify for Medicaid, states use the Look-Back Period. In most states, the Look-Back Period is five years long. This means state Medicaid agencies will “look back” into the five years of an applicant’s financial history immediately preceding their application date to see if they have given away any assets or sold them at less than fair market value.

Applicants are required to submit official financial documents that create a complete and comprehensive financial picture for the state officials to “look back” at and study. The burden of proof is on the applicant to show they have not violated Look-Back Period, and not on the state to show they have violated it. Gathering all the right paperwork is usually the most time-consuming part of the Medicaid application process, but it can expedited with the help of our Certified Medicaid Planners.

Look-Back Period violations include:

• Giving money as a gift
• Paying for someone else’s education, including family members
• Paying off other’s debts
• Loaning money
• Transferring ownership of a home or vehicle
• Donating a vehicle or other valuable items to charity
• Church tithing
• Contributing to political candidates or causes
• Selling items at less than market value

If the state finds a Look-Back Period violation, the application will be denied and the applicant may be penalized with a period of ineligibility during which they can not re-apply for Medicaid and they must pay for their care out-of-pocket. The length of the penalty period depends on the state and the amount of assets that were given away or sold at less than fair market value and violated the Look-Back Period.

The Look-Back Period is five years long in every state and Washington, D.C., with two major exceptions: California and New York.

In California, there is no Look-Back Period for people applying for long-term care coverage at home through Medicaid Waivers. And the Look-Back Period is 30 months for individuals applying for nursing home coverage, although that will be phased out by July 2026.

In New York, there is no Look-Back Period for applicants seeking in-home long-term care through Medicaid Waivers, but that is subject to change on March 31, 2024. New York’s Look-Back Period for nursing home coverage through Medicaid is the standard 60 months (five years).


How to Spend Down Assets to Qualify for Medicaid

Medicaid applicants can actually spend down on almost anything to meet the asset limit, as long as they are spending on themselves or their spouse. As you can see in the section above, spending on other people in any way is a violation of the Look-Back Period.

Applicants should also avoid buying big-ticket items that will be counted toward the asset limit like expensive jewelry, art, second vehicles or anything other “thing” of value. However, applicants are allowed to spend down by taking vacations, going to the theater or spending on any other kind of “experience.”

There are plenty of other ways Medicaid applicants can spend down to meet the asset limit, including:

• Paying off debt
• Repairing vehicles
• Buying medical equipment
• Making home modifications for accessibility and safety
• Paying in advance for long-term care

If an applicant wants to spend down by paying in advance for long-term care, they must use a Personal Care Agreement that has been approved by their Medicaid agency. These are formal written agreements that clearly state who will be receiving the care, who will be providing the care, where they will be providing it, what it will consist of and how much they will be paid. The rules on who is allowed to provide care, where they can do it and how much they can be paid vary by state and sometimes even regions within the state. Using a Personal Care Agreement can be a great way to spend down assets, remain living at home, select a caregiver of your choice and maximize your assets, but following all the rules can be difficult, unless you contact one of our Certified Medicaid Planners.


Spending Down with Medicaid Compliant Annuities

Seniors can spend down to meet the asset limit by purchasing Medicaid Compliant Annuities, which do not violate the Look-Back Period. In short, a senior uses a lump sum of cash that would have counted as an asset to buy the annuity, which then pays them back the total of that lump sum over the life of the annuity with monthly payments. It’s very important to note that those monthly payments will count toward the applicant’s Medicaid income limit. So, if the annuity brings you below the asset limit but it takes you over the income limit, it’s pointless.

There are many types of annuities, and most of them can not be used in the Medicaid spend down process. In order for one to be considered a Medicaid Compliant Annuity, the annuity must be:

• Actuarially sound – must be based no the life expectancy of the buyer
• Irrevocable – cannot be changed once it’s created
• Immediate – payments must begin upon purchase
• Fixed – monthly payments must remain the same
• Non-transferable – cannot be transferred or sold
• Pay back the full amount – total of all scheduled payments equals total of initial cost
• Name the state beneficiary – the state of residence of the buyer/Medicaid applicant will receive any remaining funds in the annuity upon the buyer’s death

States may have more rules or slight variations on rules when it comes to Medicaid Compliant Annuities. Owning an annuity that doesn’t comply to the Medicaid rules in the applicant’s state will likely lead to their application being denied, and maybe a penalty period of ineligibility. To make sure that doesn’t happen, consult with our team of professionals at Eldercare Resource Planning before purchasing an annuity.


Spending Down with Irrevocable Funeral Trusts

Medicaid applicants can also spend down without violating the Look-Back Period by purchasing an Irrevocable Funeral Trust. The money in the trust will not count against the applicant’s asset limit and it will eventually be used to pay for their funeral expenses. These expenses can include the burial plot, casket, cemetery fees, funeral home costs, headstone, hearse and any other expenses normally associated with funerals and burials.

In order to meet Medicaid standards, Irrevocable Funeral Trusts must be irrevocable, as the name implies. This means they can not be changed in any way after they are created. Most states also require Irrevocable Funeral Trusts to name the state as beneficiary, which means the state will get any money remaining in the trust after all funeral expense are paid for.

It’s important to note that there is a limit on the value of Irrevocable Funeral Trusts when it comes to Medicaid spend down. To find out the limit in your state, and find out if an Irrevocable Funeral Trust makes sense for you, ask one of our Certified Medicaid Planners.


Medicaid Asset Protection Trusts and Spend Down

Any asset placed in a Medicaid Asset Protection Trust will not count toward the asset limit. Sounds like a great strategy, right? Here’s the catch – they violate the Look-Back Period. So, in order to effectively use a Medicaid Asset Protection Trust to spend down assets and qualify for Medicaid it would need to be created and funded at least five years (in most states) prior to a senior needing long-term care and applying for Medicaid. Obviously it’s hard to know when someone will need long-term care, so this kind of planning is challenging.

Medicaid Asset Protection Trusts must follow specific rules in order to be used for Medicaid spend down, such as being irrevocable, which means they can not be altered or canceled after they have been created. Medicaid Asset Protection Trusts must also name a trustee (person who manages the trust) who is different than the person that purchased the trust, who is known as the grantor. Medicaid Asset Protection Trusts must also name a beneficiary (person who will control the trust after the grantor’s death) who is different than the grantor.

These kind of trusts are often expensive to create, so it’s usually only recommended for people who have more than $100,000 in assets to protect. An Eldercare Attorney is often needed to create a Medicaid Asset Protection Trust, and we partner with several of them at Eldercare Resource Planning. So, not only can we tell you if using one of these trusts would make sense for you or your loved one, we also have all the tools to turn the plan into a reality.


How a Certified Medicaid Planner Can Help You Qualify For Medicaid with Spend Down

When it comes to Medicaid spend down, using a planning professional is invaluable. Our Certified Medicaid Planners can help applicants determine the asset limit for their specific situation. They can tell you which assets are countable, which are exempt and how much you are over the asset limit.

They understand the Look-Back Period rules and how to avoid violating them. They can make sure you spend down in all the right ways and none of the wrong ones. They can help you when it comes to drafting Personal Care Agreements or purchasing financial products like Medicaid Compliant Annuities, Irrevocable Funeral Trusts and Medicaid Asset Protection Trusts.

On top of it all, they can help you gather documents, organize receipts and present your financial history in the best way possible when you hand it in with your Medicaid application. They know how the state agency likes their applications and they will make sure yours is done correctly.

Spending down according to the rules can mean the difference between qualifying for Medicaid and the peace of mind and comfort that comes with it, and being denied long-term care and the stress and discomfort that comes with that. Connect with our team of professionals to make sure you end up on the right side of that line.

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