Summary of Factors to Consider in the Spenddown Process

In the simplest situation which we have a single applicant applying for Medicaid, the following are some of the salient factors to consider in projecting the date of eligibility. Assuming an average monthly nursing home costs $10,000.00 and social security of $2,000.00 (no pension), and $100,000.00 of assets, consisting of stocks, cash accounts and retirement benefits, the following factors should be considered:

1. The net cost per month would be $8,000.00 ($10,000.00 minus social security).
2. An approximate cost of a pre-paid funeral would be $10,000.
3. The nursing homes often require a deposit of two months nursing home costs, the net amount of which would be $16,000.00
4. There is a cost of liquidating the IRA, the distribution of which results in ordinary income. Therefore, the income tax cost would be part of this spenddown.
5. If there is a money market, many people are concerned that there would be a penalty for termination during a money market term. However, there cannot be a penalty if the term is interrupted by the death of the applicant.
6. Of course, as indicated in Post 3, the cash value of life insurance could also be a factor.
7. If there are stocks, which must be sold, capital gain enters into the computations.

As indicated in Post 103, once the decision is determined that Medicaid is the goal, financial planning is no longer relevant. That is, a client cannot hold on to a valued investment since all resources must be liquidated in order to project the date of eligibility.

Many other topics relate to this, such as an inadvertent inheritance of the Medicaid applicant which is discussed in Post 60.

As indicated throughout the postings, the relevant amount of $4,000.00 or $2,000.00 must be made on the first day of the first moment of institutionalization. Institutionalization has been defined as the earlier of the first day a person enters a nursing home, goes into a hospital or receives home care.

Keep in mind in a spousal situation, the "spousal income allowance," also known as the shelter allowance and/or MMNA, can be set aside for the community spouse. Also the amount of Medigap insurance can be retained by the community spouse, as can $35.00 a month. Therefore, as indicated in Post 1, a spousal situation assigning social security, might be imprudent. Said posting also points out that pension benefits cannot be assigned because of restrictions in the Internal Revenue Code.

Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.
© September 2011, Post 163