Medicaid Spend Down – More Involved than First Meets the Eye (Part 5)

In this fifth blog post of five,  I finish up with Mary’s call to our office about qualifying her mom for Medicaid.  Mary thought her mom had very few assets left which could then be transferred to a special needs trust (SNT).  Unfortunately, as I have explained in my past 4 posts, Mary was misinformed on a number of issues.

Her mother’s life insurance policy has $150,000 in cash value.  That money must be spent down.  She cannot transfer it to the SNT which was set up for the benefit of her brother because he has not been deemed disabled by Social Security or the State of New Jersey.  Similarly, the mobile home that he lives in but which Mom owns is a countable asset for Medicaid purposes and cannot be transferred to the SNT.  Finally, the annuity that her mom purchased can be sold if someone is willing to purchase it.  That cash would then also be considered an asset.

So Mary then asked me, “where do I go from here”?  There are a few possible options.  If she thinks that her brother can qualify as disabled then Mom could transfer assets to him or to a trust for his benefit, although the SNT she created years ago is not the right trust for this purpose.  Of course, until that disability designation is made she needs to continue to pay for her long term care.  Transfers to or for the benefit of her brother would be exempt from any Medicaid penalty only once he is deemed disabled.

If this option is not available or not realistic, Mary must liquidate the life insurance policy to spend down the cash value.  If the policy is surrendered, the $250,000 will be lost.  Alternatively, she can purchase the policy (if she has the funds to do so) for the cash value and preserve the death benefit.

The home that Mom had purchased for Mary’s brother to live in would also need to be sold and the cash spent down.  Alternatively, Mary could purchase a part of the home.  When a Medicaid application is filed, as a co-owner Mary could refuse to sell, making it an inaccessible asset for Medicaid purposes.  It would not be counted as an asset but after Mom passes away, Medicaid could assert a lien against it to recoup the benefits it paid out.

Finally, we still need to know if the annuity is an asset or income.  Mary would need to shop it to see if any company will buy it.  If so, that lump sum would also be a countable asset and must be spent down.

The decisions Mary must make aren’t easy ones.  The lesson learned, however, is that had her mom made different choices years ago and received different advice, the plan she thought she had put in place could have worked.