How to Spend Down Assets for Medicaid

If you or your loved one are facing a nursing home stay, chances are you’ve considered Medicaid. But what happens if you or your loved one has too many assets to qualify? Fortunately, you have several options to spend down those assets and accelerate Medicaid eligibility. Here’s how.

Beware of Gifting Your Assets

Although you may be tempted to gift away your assets, it’s important to note that Medicaid rules stipulate a 5-year lookback period from the date of the application. If any gifts or sales for less than fair market value took place during that period, you can incur a penalty period. You will be ineligible for Medicaid benefits until the penalty period ends.

Read More: What are the Medicaid Lookback and Penalty Periods?

Fortunately, you have multiple other strategies at your disposal, such as upgrading exempt assets, paying off your debts, purchasing a funeral expense trust, and using a Medicaid Compliant Annuity.

When to Seek Medicaid Eligibility

First, it’s important you pick the right time to utilize these strategies. In nearly every case, the spend-down process should take place after you, or your unhealthy spouse, have already moved into the nursing home.

Purchase or Improve Exempt Assets

A popular option for spending down assets is buying or upgrading possessions that are exempt for Medicaid purposes. This option is ideal for a married couple with one spouse entering the nursing home and one spouse staying in the community. Exempt assets include:

Your primary residence

You may choose to make repairs to your current home or upgrade to a different residence.

Your personal property

Essentially, this includes everything in your home. You could purchase a fresh set of furniture or a new TV, for example.

Your primary vehicle

One car is exempt for Medicaid purposes. You may choose to replace an old vehicle with something newer, safer, and better suited for your purposes.

Although these assets are exempt for Medicaid purposes, they may be subject to state recovery upon death. The best course of action is to eliminate as many assets as possible, especially if you’re a single person or in poor health.

Pay off Debts

Another way to spend down your assets is to pay off your debts. This may include a mortgage, car loan, credit cards, or other debts.

Add a Funeral Expense Trust

In addition to improving current assets and paying outstanding balances, you can also spend down by purchasing certain products. The first is an irrevocable funeral expense trust, which allows you to allocate a limited amount of funds ($15,000 in most states) to pay for funeral expenses.

Utilize a Medicaid Compliant Annuity

This last strategy for spending down your assets can help you not only accelerate your Medicaid eligibility but also preserve your leftover assets in the process. A Medicaid Compliant Annuity takes the excess amount remaining after working through the strategies above and turns it into an income stream. Since the annuity has no cash value, it is not considered an asset, making it compliant for Medicaid purposes.