Facts
Married couple with $200,000 in assets, a home, and $2,500 monthly income: CRISIS PLANNING!
Mark and Tina are married. Tina recently moved into a nursing home, and Mark continues to live in the nursing home.
Combined Assets:
- Bank accounts and CDs: $10,000 (Wife)
- IRA: $50,000 (Husband)
- Variable Annuity: $50,000 (Husband)
- Mutual Funds: $90,000 (Joint)
- Home: $250,000 (Joint)
- 2010 Auto: $12,000 (Wife)
Monthly Income:
- Social Security (Wife): $900
- Social Security (Husband): $1,200
- Pension (Husband): $400
Monthly Expenses:
- Nursing home fee for Tina: $5,500
- Health insurance premium: $200
- Miscellaneous: $100
- Upkeep of house: $600
- Food for Mark: $350
Process
Count the Assets
The home and auto are excluded, so they are not counted for this purpose. Everything else is counted regardless of whose name it is under: husband’s, wife’s, or joint.
Total Countable Assets: $200,000
Net Monthly Expenses
- Total Expenses: $6,750
- Less Combined Income: $2,500
- Monthly Shortfall: $4,250
Without planning, this couple will run out of money in less than four years. Enter Medicaid planning!
Medicaid Eligibility
Assets
Assume they live in a “100% state.” Since the couple’s combined assets exceed the CSRA (Community Spouse Resource Allowance) of $128,640, that is the amount Mark will be allowed to keep.
The balance of their assets, other than Tina’s $2,000 personal exclusion, must be spent down or depleted before Medicaid will pay Tina’s nursing home bills.
Excess Assets Calculation:
- $200,000 – $128,640 – $2,000 = $69,360 “too much” to qualify.
Income
Once Tina is eligible for Medicaid:
- Mark is entitled to a minimum monthly income of $2,114.
- His own income is $1,600 from Social Security and Pension.
- He will be allowed to keep $514 from Tina’s income.
- The rest of Tina’s income will go to the nursing home, less a small “personal needs allowance” of $30 to $101 and occasional uncovered medical expenses.
- Medicaid pays the difference between her income and the nursing home cost.
Step 1: Immediate Action
Because of Tina’s deteriorating mental state, remove her name from all assets and transfer to Mark. This does not affect CSRA but allows Mark flexibility in purchases and gifts after Tina’s incapacity.
How to Spend Down the $69,360 “Excess Assets”
Spending Options:
- Prepay funeral and burial expenses: $12,000 to $20,000
- Prepay burial expenses for other family members: $3,000 to $50,000
- Improve the house: Estimated $15,000
- Buy a newer car for Mark: $10,000 to $20,000
- Purchase additional personal property (TV, computer, etc.): $6,000
Total Potential Spenddown: $46,000 to $111,000
If Money is Still Left Over
If after expenditures, money remains (e.g., $23,360 excess assets left after spending $46,000), consider half-a-loaf gifting.
Half-a-Loaf Gifting Strategy
Gift Formula:
- Total Excess Assets Remaining: $23,360
- Combined Net Monthly Expenses: $4,250
- Penalty Divisor: $5,000
Calculation:
- $23,360 ÷ ($4,250 + $5,000) = 2.5 months penalty period
- 2.5 months × $5,000 = $12,500 gift amount
Action:
- Gift $12,500 to children
- Remaining $10,860 to purchase a Medicaid-compliant annuity (Mark as owner/annuitant) or lend via a promissory note.
Apply for Medicaid Immediately
- Tina will be disqualified for 3.1 months due to the gift.
- The annuity/note payments will increase Mark’s income during this period.
- This will allow Mark to cover Tina’s private care.
- At the end of the penalty period, they will be below the $128,640 CSRA threshold.
Frequently Asked Questions
What are countable and non-countable assets for Medicaid eligibility?
For Medicaid eligibility, certain assets are excluded from consideration, such as the couple’s primary home and one vehicle. Countable assets include bank accounts, IRAs, annuities, mutual funds, and any other liquid or investment assets regardless of ownership title. In this case, $200,000 is the total of countable assets.
How much can the healthy spouse keep in a Medicaid scenario?
In a “100% state,” the community spouse is allowed to retain the Community Spouse Resource Allowance (CSRA), which is $128,640. The institutionalized spouse may keep up to $2,000. Assets above this combined allowance must be spent down before Medicaid will begin to cover costs.
How does Medicaid treat income from both spouses?
Once the ill spouse qualifies for Medicaid, the healthy spouse (community spouse) is entitled to a minimum monthly income, often called the Minimum Monthly Maintenance Needs Allowance (MMMNA). If their income falls below that level, they can keep some of the institutionalized spouse’s income to reach it. The remainder of the Medicaid applicant’s income goes toward nursing home costs.
What are acceptable ways to spend down excess assets?
Acceptable spend-down options include prepaying funeral and burial expenses, improving the home, upgrading a vehicle, or purchasing personal property. These strategies must align with Medicaid rules to avoid penalties, and the spending should be well-documented and appropriate.
What is the half-a-loaf gifting strategy?
This strategy involves giving away a portion of excess assets while using the remainder to cover the Medicaid ineligibility penalty period. For instance, a couple could gift $12,500 and use the remaining funds to buy a Medicaid-compliant annuity or issue a promissory note, allowing Medicaid eligibility once the penalty period ends.