In Part 2 of my Medicaid Planning Series we are going to discuss what “Exempt Assets” are and how to use them for Medicaid Planning.
If you haven’t read Part 1 of this series – I recommend that you read it now – as it gives a general overview of Medicaid Planning basics and sets the table for our discussion on Exempt Assets.
Private Pay v. Medicaid
The general rule is that a person is expected to use the assets that they own and any income that they receive in order to pay for their nursing home care. Lets’ assume that John Smith is a single person and besides his clothes and other household items his only asset that he owns is $100,000 in a savings account. (In this example we are assuming that John does not own a home or a car.)
John has to go to a nursing home (aka Skilled Nursing Facility – CLICK HERE for my article about Senior Living Options in McLean County). The nursing home costs $10,000 a month. John will be expected to pay for his nursing home care out of his own funds. In this scenario the $100,000 would be used to pay for the next 10 months of nursing home care ($100,000 / $10,000-month = 10 months). At the end of the 10 months John has spent down his savings to $0.00. John would then have to apply for Medicaid to pay for his nursing home care costs after he no longer has any savings left.
When someone applies for Medicaid – in the application they must list:
- all of the assets that they own (can’t be more than $2,000 of NON-EXEMPT assets)
- all of the income that they currently receive (cannot be more than monthly nursing home costs)
- all assets they have transferred out of their name over the last 60 months
The general rule is that in order to qualify for Medicaid – a person cannot own more than $2000 of NON-EXEMPT assets – that’s not very much!!! The government, however, does allow people to have certain “Exempt Assets” that are not counted as a resource to pay for nursing home costs. Exempt Assets are assets that are owned by the Medicaid applicant that the government doesn’t count as a resource to pay for nursing home care expenses. A Basic Medicaid Planning technique is to review your assets and turn as much Non-Exempt Assets that are owned (such as John’s $100,000 savings account) into Exempt Assets (which will be listed and discussed below).
Exempt Assets Overview
Below is a partial list of a few of the most common Exempt Assets for Medicaid Planning. Note: All of these exemptions listed below have specific rules that must be followed in order to qualify as an “Exempt Asset”. This article is a general overview of Exempt Asset Planning for Medicaid. Medicaid Planning is very fact specific to each individuals situation. Anyone planning for Medicaid should consult with a professional that is experienced in Medicaid Planning.
1. Prepaid Funeral Expenses: Money spent or set aside to cover funeral and burial expenses are Exempt Assets for Medicaid Planning. There are different ways one can set aside money to pay for funeral expenses – but the best way and most common way is to prepay for funeral expenses with a prepaid contract with a funeral home that is funded with life insurance. This life insurance policy will be irrevocably assigned to the funeral home and there is no limit as to how much can be spent on the funeral or burial services. If you only set aside money in a special bank account or in a revocable trust – then only $1500 is exempt for Medicaid purposes. A Medicaid Applicant can also prepay for the funeral and burial expenses of their spouse as well.
Paying for Funeral Expenses in advance is one of the simplest ways to invest in an Exempt Asset prior to applying for Medicaid. Every funeral home will have information about prepaid contracts funded with life insurance. If this is something that you would like more information about – I would highly recommend contacting Chad Sparks at Calvert & Metzler Funeral Home. You can contact Chad Sparks by calling at (309) 827-7577 or e-mailing him by CLICKING HERE.
2. Automobile: One automobile is Exempt for Medicaid purposes if it is needed to provide transportation for essential daily activities; transportation for medical treatment; or modified in such necessary to transfer a handicap person. A vehicle used for one of these purposes does not have a limit on value. If a vehicle is not necessary for one of these purposes, then the value is limited to $4500. Also, if there is a spouse of the Medicaid applicant – the spouse can have a vehicle with no limit to value.
3. Personal Property and Household Goods: A Medicaid applicant can have up to $2,000 of personal property and household goods as Exempt Assets. Televisions, bedding, clothing and other personal items should be purchased before the applicant spends down their assets to qualify for Medicaid in order to enhance their quality of life in the nursing home.
4. Residence: Generally a personal residence is an exempt asset so long as the Medicaid applicant has an intention (even a subjective intent) to return to their home. It can be said that all nursing home residents would like to return to their home in the future – so this exemption can always be argued to have been met. The home must not be worth more than $536,000 or it will not be considered an Exempt Asset. If the spouse of the Medicaid applicant is living in the home – then the home can be worth more than the $536,000 limit. Any repairs on a residence are exempt from Medicaid as well. It is advisable to spend money on fixing a roof, replacing a furnace or air conditioner – before the Medicaid applicant has spent down all of their money.
5. Community Spouse Asset Allowance: A spouse of the Medicaid applicant that is still living at home is considered a “Community Spouse” – as they are still living in the “community” and not in a nursing home. A Community Spouse is entitled to have up to $120,900.00 in 2017 that won’t be counted as assets available for paying for nursing home costs. This amount is called the Community Spouse Allowance. We will discuss Community Spouse Planning in more detail in Part 3 of our Medicaid Planning series.
John Smith Medicaid Planning with Exempt Assets
These are the most common Exemptions that people can use prior to applying for Medicaid. To follow up with our John Smith scenario above, John could have done the following to legally “spend down” his $100,000 in savings prior to applying for Medicaid:
- Pre-Paid Funeral Expenses: John could have purchased a burial lot and paid for pre-paid funeral expenses by using a pre-paid funeral contract funded with life insurance that was irrevocably assigned to the funeral home. Let’s say John did this and paid $20,000 on pre-paid funeral expenses.
- Automobile: John could have purchased a reliable car so someone could drive him to medical appointments and other “essential daily activities.” John doesn’t want to have to deal with paying for car repairs in the future so he purchases a new car for $30,000.
- Personal Property: John buys a new television, clothes, shoes and other personal property up to the $2000 Exemption Limit.
John is not married and doesn’t own a personal residence – so those exemptions are not available in our scenario. By using these exemptions that the government allows – John was able to spend $52,000 on his funeral, car and personal items which will increase his quality of life in the nursing home and will save his children money in the future by not having to pay for John’s funeral expenses.
The next and last article on this Medicaid Planning series will cover more advanced topics in Medicaid planning – including Trusts, Annuities and Community Spouse planning.