You have probably heard many things about nursing home Medicaid qualification. For example, you may have heard that if you are single, 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. Or if you are married and one of you are in the nursing home, you have to spend down one-half the marital assets on nursing home care for Medicaid qualification.
This advice, like other advice you may have heard, is well intentioned, but only partly true. Often what you are not told is your assets do not necessarily have to be used for nursing home expenses. Both Federal and state statutes, rules and regulations have some very specific, family friendly ways to use your assets on non-nursing home expenses and still qualify you or your spouse 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 do-it-yourself Medicaid planning which does not work out. What often happens is that there are excess assets preventing Medicaid qualification. Or there are transfers that trigger divestment penalties causing periods during which Medicaid will not pay for nursing home costs. This then results in substantial family bills for nursing home care.
When you hear about spend down of assets to qualify for Medicaid nursing home care, it 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. These assets are described in the Michigan Department of Human Services (“DHS”) manuals.
So what can you keep if you are in a nursing home and still qualify for Medicaid? In making a determination of which assets you can keep, you first have to look at all your assets to determine if they are exempt or countable.
The largest exempt asset for most people is your home. In order to be exempt, your home must have an equity value of $536,000 or less, in 2013. In addition, your home must be titled and used properly. This in and of itself is a complex matter and has been the subject of a separate column. If your home is not titled or used properly, it is not exempt, but is countable and is an available resource to pay for nursing home care.
Expenses relating to your exempt home are also generally permissible without creating penalty periods. 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 is $11,970 effective June 1, 2013. 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 with your assets, then your family may be liable for your funeral and burial expenses after your death.
Up to $1,500 in value of your life insurance policies is also exempt. Since term life insurance usually has no cash value, you generally 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 value is in excess of $1,500?
You have a number of options to reduce the value of your life insurance policies to $1,500 or less. You could just cash in the policies so they are no longer in force. However, if there is a big spread between the 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 value below $1,500.
Payments on your properly documented debts, such as mortgages, car loans and credit card bills are also generally allowable. More than one client has come to our office after being told they had to spend down their assets on nursing home care when they had unpaid debts. In most of these cases, we were able to assist the clients to properly use the funds to pay down on the debts, which would qualify them to apply for Medicaid to pay for nursing home care.
Paying fair value for services rendered is generally allowable without creating penalty periods of Medicaid disqualification. For example, paying your attorney for legal services rendered would be ok. However, paying your grandson $1,000 to mow your lawn may be considered part gift, unless you have a really big lawn.
If you are single and in the nursing home, you can use excess assets to create an income stream with Medicaid qualifying annuities or promissory notes to pay for your nursing home care during divestment penalty periods resulting from gifts of some of those assets to loved ones.
If you are married and in the nursing home and your spouse is still living at home, you can use a solely for the benefit of spouse trust to save additional assets for your spouse so he or she can afford stay in your home.
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, CPA, JD
Published edited June 16, 2013 in The Times Herald newspaper, Port Huron, Michigan as: Family-friendly options for Medicaid nursing home rules