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Money that would normally have to be spent towards nursing home costs to deplete assets in order to qualify for Medicaid could be redirected for other purposes to benefit members of the family. In a sense, this is additional money that would not have to be spent for long term care costs but could be used for family members. Let's look at an example.
Suppose John has $201,999 in cash equivalent assets and about $3,000 a month in income. This is the money that Medicaid attributes to John that must be spent down before he could qualify for Medicaid. John has to go to a nursing home. The nursing home costs $7,000 a month. John must spend $200,000 of his cash leaving him with $1,999 and then Medicaid will cover the difference between his income and the nursing home. Normally, the family assumes that the $200,000 must be spent on the nursing home. John must come up with an additional $4,000 a month on top of his income in order to cover the nursing home cost. Assuming he uses all of his money for nursing home costs, it will be totally depleted in 50 months (or a little over four years) and then Medicaid will take over paying the $4,000 a month that he is deficit.
But the $200,000 does not have to be spent on a nursing home. John could withhold about four or five months worth of nursing home costs from his $200,000 and then use the balance of the money for any one or any combination of the strategies below. Let's assume that John withholds $20,000 for the nursing home cost for five months while he is pursuing some or all of the strategies below. The $180,000 that he has left will likely end up with the family instead of being spent on the nursing home. After five months his $20,000 is depleted and Medicaid will take over.
John's state allows him to sign an intent to return home which would last indefinitely. This means that his home is exempt from Medicaid spend down but not from Medicaid recovery. If John had a spouse or a qualifying dependent or sibling living in the home, John would transfer his interest in the title to that person. At this point, the property is still exempt because it was an allowable transfer. However, the property is no longer subject to Medicaid recovery because it is no longer in his name. Prior to transferring the title, John could put a substantial amount of money into fixing up the home to make it more valuable. Thus, when the home is eventually sold, the appreciated value will go to the person who is living in the home or to other members of the family. Some states frown on this practice and require justification for fixing up the property beyond just making it more valuable.
John can also use his money to convert it into an exempt assets for Medicaid purposes. The value of assets that are used for business purposes is exempt for Medicaid purposes. John could use his cash to purchase income producing property which has now converted to cash into an exempt asset for Medicaid purposes. This income property could be managed by John's spouse or his family to create additional income. Even though the income would have to be used towards John's nursing home cost, the equity value of the property could be retained by his family or his spouse if the proper arrangements are made.
Most states will allow members of the family to be paid to take care of a potential Medicaid beneficiary. If these arrangements are set up properly, the money represents a legitimate expense and not a gift to the family member. Most states only allow this transfer on a month-to-month basis so this strategy is not very useful for transferring large sums of money for Medicaid spend down purposes. Let's suppose that John contracts with his children to provide care services for him to help him stay at home instead of going into a nursing home. This requires a substantial amount of care and John pays members of his family $8,000 a month to provide this care. As long as the arrangement is set up according to Medicaid rules, this is a legitimate monthly cost and not a gift to family members. Thus, no penalty is created for giving this money to the family. On the other hand, the family must work hard for this money because it is not a gift. Perhaps John could maintain this arrangement for 12 months before the family becomes worn out and John has to go to a nursing home. Effectively, John has transferred about $100,000 of his money to his family.
In Florida, a lump sum can be set aside to pay for the family-provided services whether John is at home or in a nursing home under Medicaid. This set-aside is equivalent to the number of months John is expected to live. According to the life expectancy table used by Florida, John is expected to live another five years or 60 months. If John were in a nursing home under Medicaid, paying his family an additional $2,000 a month to provide supplemental care under a legitimate personal service arrangement, $120,000 of John's money could be set aside for this purpose and it would be a legitimate transfer and not a gift.
A vehicle and personal property are considered exempt assets for Medicaid purposes. However, one cannot be too greedy in purchasing very expensive automobiles or expensive jewelry expecting these to be gifted to family members or resold. Medicaid has its limits. On the other hand, a new van with a wheelchair lift costing $50,000 could be a legitimate purchase. A member of the family would eventually inherit this van. Likewise, John could purchase new furniture and appliances for his home knowing that his family would need these things after he were gone. State Medicaid agencies are particularly restrictive about how much money can be used for this purpose and in some states it may not be a valuable option. Any purchases used for personal property must be justified or they will be disallowed.
Most state Medicaid programs allow money to be set aside to pay for funerals and burials. In most cases this money has to be in a trust in order to protect it as a non-countable asset for Medicaid purposes. All states have a limit on how much money can be set aside. The money must be used for a funeral and burial purposes. The trust must provide that any money not used will revert back to the state.
This planning technique allows money to be set aside for other than long term care purposes. A funeral and burial could cost anywhere from $8000-$10,000 and this strategy provides the extra cash for this purpose.