Usually the most valuable non-countable resource for a long-term care Medicaid recipient (whereby the government helps pay for care costs at a long-term care facility plus medications if the applicant/recipient has less than $2,000 of countable resources) is the homestead. Although there is no equity limit of a homestead if the Medicaid applicant is married (and the countable resources can be substantially greater), there is presently a $603,000 equity limit in Texas if the applicant is single. However, if the homestead is sold, then the cash proceeds would be countable (even if you had a Ladybird deed which avoids a successful claim for estate recovery after the death of the Medicaid recipient if the homestead is not sold) and eligibility would be lost until the Medicaid applicant or recipient (if the applicant or recipient is single) is again below the $2,000 resource limit. So how can a Medicaid recipient regain eligibility other than simply spending their resources on their care until eligibility limits are again met?
- Pay bills – if the Medicaid recipient owes bills (i.e., credit cards, lien on homestead, promissory notes, doctor or nursing home bills, etc.), then the payment of debts reduces countable resources.
- Purchase other non-countable resources – although a homestead is usually the most valuable resource that is non-countable for Medicaid, the cash proceeds can be used to purchase other non-countable resources – including purchase of a new home even if the Medicaid recipient never lived in the new home (when applying for Medicaid, the applicant is required to live in the home – but that is not the case if the Medicaid recipient sells the homestead and purchases a new homestead). The new home doesn’t have to be equal in value to the amount of the sales proceeds from the original home, but the balance should either be “spent down” by either paying bills, buying other non-countable resources or making a transfer that is an exception to the rules or purposefully making a transfer creating a transfer penalty as explained below.
In addition to purchasing a new home, other non-countable resources include (but are not limited to) a pre-need funeral, burial spaces for parents, siblings and children and their spouses, one car regardless of value, personal property items, term life insurance and mineral interests that are worth less than $6,000 that generate an annual return of at least 6%.
- Utilize exceptions to transfer penalty rules – although most uncompensated transfers are subject to a five-year lookback period and could be a penalized event, there are some exceptions to the rule. A few examples include (1) transfers to a disabled child (but be careful if the disabled child is on Medicaid as that would jeopardize eligibility of the disabled child); (2) direct transfer to an UTMA (Uniform Transfer to Minors Account) for a beneficiary under 21 or to an irrevocable 529 plan for college education; (3) transfers to a special needs trust for the Medicaid applicant or recipient if the Medicaid recipient is under age 65; (4) transfers to a sole benefits trust for any disabled individual (not just a child of the Medicaid recipient); and (5) transfers to a spouse if the Medicaid applicant or recipient is married (however timing is important and the rules vary by Medicaid program).
- Penalized transfers – another option is to calculate the difference in the Medicaid applicant/recipient’s income and the cost of the nursing home care (this only works with long-term care Medicaid and not Medicaid programs for assisted living or at home care or for those on Medicaid as a result of being on Supplemental Security which programs have different rules) along with the amount of countable resource balance and purchase a Medicaid compliant annuity that will expire at approximately the same time as a transfer penalty for an amount to be transferred determined by such calculation. Although this doesn’t save all of the cash, it should result in the majority of the balance of the house proceeds being saved from being spent only on the cost of care.
- Combination of options – you can mix and match all of the above options to fit the goals of the client.