Medicaid Spend Down – More Involved than First Meets the Eye (Part 3)

In this week’s blog post I continue with the story about Mary’s call to our office concerning Medicaid eligibility for her mom. Mary was seeking confirmation that Mom was ready to apply and that the home  she purchased for her son 15 years ago could be transferred to the special needs trust (SNT) she established 10 years ago.  Mary also believed that Mom’s life insurance policy which named the trust as the death beneficiary would provide enough cash to help her brother pay the expenses of the home and other living expenses.

As I explained last week, unfortunately Mary was mistaken.  Her brother was never deemed disabled so any transfer of Mom’s assets to the SNT now carries a Medicaid penalty or waiting period for benefits.  The more money transferred the greater the penalty, which is based on a mathematical calculation.  The home, however, is not the only asset Mom has.  

Mom’s life insurance policy is not a term policy but rather a whole life policy.  It has $150,000 of cash value which Mom has the ability to withdraw.  This is a countable asset for Medicaid eligibility purposes.  She can either withdraw the cash value by taking it as a loan or surrender the policy and receive the cash.  Surrendering the policy means it is canceled so when Mom dies there is no longer a death benefit.  Borrowing the cash value means that loan payments must be made with interest to keep the policy going but it also means that when Mom dies the death benefit is preserved.  Mary told me the death benefit is $250,000 so surrendering means losing the additional $100,000 over and above the cash value.  In either case, some or all of the insurance proceeds would no longer be available to be used to help her brother.

There was also potentially another asset available to Mom.  Mary had mentioned that Mom has an annuity from which she receives a monthly payment and has for years.  Annuities are tricky when it comes to Medicaid.  In her initial call to our office, we asked her for a copy of the annuity contract which she provided.  Next week I’ll tell you what I found out when I read the contract.