Medicaid When a Spouse Owns a Business – Part 2

In my blog post last week I wrote about a more frequent scenario we are seeing with married couple Medicaid applications.  It’s one in which one or both spouses own a business from which they derive income.  As I explained last week, Medicaid allows the healthy spouse to keep a certain amount of countable assets.  The maximum this year is $137,400.

In addition to that, however, there are certain non countable or exempt assets.  The common ones are the principal residence and one car.  But one exemption in particular applies to a business.  Medicaid regulations specifically provide that non-home property that is used in a business or non business self-support activity that is essential to the means of self support of the Medicaid applicant or his/her spouse is excluded as an asset.  Tools, equipment and other items that are used for trade or business and required for employment are assumed to be of a reasonable value and producing a reasonable rate of return and are excluded.

That’s what the regulation says but what exactly does it mean?  Equipment of the business is the only item specifically referenced.  What about if the business is located on a piece of property that is owned by the applicant and/or spouse?  The exception would appear to cover it and make the real estate an exempt asset.  A business bank account which collects revenue and pays costs and expenses of the business should also fall under this exemption.

The business, however, will also impact Medicaid’s income calculations. The net income is countable so all income should be payable to the healthy spouse and none to the Medicaid spouse once a Medicaid application is filed.  At the same time, that income attributable to the healthy spouse will affect if and how much of the Medicaid spouse’s income he/she can keep.  In most cases, however, the income from the business will more than offset this loss.

This is not to say that getting a Medicaid application approved when a business is involved is easy.  It isn’t and then there is estate recovery to consider after the applicant and spouse pass away as well.  For this reason, it is still desirable to avoid using this exemption and instead engaging an experienced attorney to set up an asset protection plan more than 5 years before an anticipated Medicaid application.  But, if it is too late to do that, then the exemption for a business is the only option available.