Importance of Liquidating Assets in the Medicaid Planning Process

Importance of Liquidating Assets in the Medicaid Planning Process

Reference is made to Post 12 that discusses basic planning situations referred to as “bread and butter” planning techniques. With respect to investments, the value fluctuates from day-to-day. Therefore, if we have a basic situation with an applicant without a community spouse (although would apply to a community spouse situation), the existence of investments precludes an exact determination of resources on the first day of any given month.

Therefore, as part of the pre-Medicaid plan, it is necessary that such assets be liquidated and the capital gain considered in the prepayment of taxes (if applicable).

Such rationale would also apply to assets such as IRA’s with investments within the IRA. Of course, the liquidation of the IRA gives rise to income tax consequences.

Also, it is necessary to prepare a power of attorney for the potential applicant. This is necessary for numerous reasons. However, with respect to an application for Medicaid, it is necessary that the assets of the applicant be “accessible” in the event liquidation is necessary and the applicant is not competent as Medicaid approaches.

In an ideal “bread and butter” situation, it is important to limit the factors to be considered in projecting the date of eligibility for Medicaid. Such factors would include the resources of the client, the individual’s pension and/or social security payments and the monthly cost of the nursing home (including extras). This matter becomes complicated if there are assets subject to fluctuation.

The following is the simplest form of the projection problem:

Applicant (single individual) has bank accounts of $40,000. Monthly social security checks are $1,000. Assume monthly nursing home charges of $6,000. Applying the social security payments against nursing home costs results in a “net” monthly cost of $5,000. Therefore, Medicaid eligibility is anticipated in eight months ($40,000 bank accounts divided by
$ 5,000 “net” monthly cost)

Of course, the above example is markedly simplified. Prior blogs have discussed issues that complicate the eligibility process such as payment of debts, liquidating resources, income tax liabilities, prepaid burial arrangements, life insurance, the handling of pension and social security payments and the recommended priority of payment of debts and expenditures.


Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.


© April 2009, Post #20