You have probably heard that you have to spend down all of your assets on nursing home costs to a mere $2,000 before Medicaid will pay for your nursing home care. Often what you are not told is those assets do not necessarily have to be used for your nursing home expenses. The Michigan Department of Human Services (“DHS”) has some very specific, family friendly ways to spend down your assets and still qualify you for Medicaid to help cover your nursing home costs.
I am going to briefly describe some of these family friendly options. However, the Medicaid rules are very complex. I regularly see people who have attempted to do their own Medicaid planning and it does not work out. What often happens is that they have too many assets to qualify for Medicaid or they made a transfer that resulted in divestment penalties. This then results in substantial family bills for nursing home care.
When you hear about spend down, that term is actually only referring to the spend down of “countable” assets. There are a number of assets that are not required to be spent down. These are called excludable or “exempt” assets.
So what can you keep if you are in a nursing home? In making a determination of what assets you can keep, you first have to look at your assets to determine if they are exempt assets or countable assets.
The largest exempt asset for most people is your home. In order to be exempt, your home must have an equity value of $500,000 or less. In addition, your home must be titled and used properly. This in and of itself is a complex matter and is the subject of a separate column. If your home is not titled or used properly, it is not exempt, but is countable and subject to spend down.
Expenses relating to your home are also considered exempt. You could make repairs or improvements to your home such as putting in new carpet, repairing the porch, putting on a new roof, painting the interior or exterior or finishing the basement. Those payments are allowable expenses as are other household expenses such as payment for utilities, lawn care, snow removal, cleaning, insurance and real estate taxes
In addition to your home, you can keep one automobile. Although technically there is no limit on the value of your car, I do not recommend going out and buying a Mercedes SL550 Roadster. As an exempt asset, that type of vehicle may very well be rejected. Such a vehicle is not very suitable for you as a nursing home resident and DHS may presume it was really purchased for one of your family members.
You can have a prepaid funeral and it could be considered an exempt asset. The limit on the cost of pre-paid funerals changes occasionally, but is now around $11,000. Be careful on the type of prepaid funeral you purchase. To be exempt, it must be certified as a DHS Irrevocable Funeral Contract. Burial plots or niches with improvements such as engraved stones are also considered exempt assets. If you do not pre-pay your funeral and burial expenses and instead pay for nursing home care, then your family will be liable for your funeral and burial expenses after your death.
Up to $1,500 in cash value of your life insurance policies is also exempt. Since term life insurance generally has no cash value, you can have all the term life insurance policies you want. With other life insurance, there usually is some cash value build up. What do you do if the cash value is in excess of $1,500?
Well, if the cash value of your life insurance policies is more than $1,500, you have a number of options. You could just cash in all of your policies so they are no longer in force. However, if there was a big spread between the cash value and the death benefit, you may want to preserve that death benefit. You can keep a policy in force and make a partial withdrawal of the cash value to get it below $1,500 or you could take out a loan on the policy, which could also get the cash value below $1,500.
Payments on your properly documented debts, such as mortgages, car loans and credit card bills are also generally considered exempt,
If after all this, your countable assets are still more than $2,000, there are more family friendly DHS provisions available to preserve your assets. If your spouse is still living at home, he or she may be entitled to a share of your assets. You can use a “solely for the benefit of” spouse trust to save additional assets for your spouse. If you are single, you can use certain Medicaid qualifying annuities or promissory notes to preserve family assets.
All of the asset preservation provisions discussed above are specifically provided for in the Medicaid rules. These are just some examples of what can be done to preserve your assets. This is not an exhaustive list. I do not recommend that you try this alone. Before attempting any of these ideas, you should consult with a knowledgeable legal specialist with experience in the areas of elder law and Medicaid qualification.
By: Matthew M. Wallace, CPS, JD
Published edited June 13, 2010 in The Times Herald newspaper, Port Huron, Michigan as: Family friendly spend-down options do exist