This blog post is the eighth chapter of a series entitled “How to Qualify for Medicaid in Pennsylvania.” This post focuses specifically on how to qualify by spending down. Qualifying for Medicaid can be confusing and complicated, but this guide helps explain it easily. You can order a copy of the complete guide here.
Many nursing home residents need to “spend down” to qualify for Medicaid because their countable assets exceed their applicable limits.
Now that you know what assets are countable, and what the limits are, you should be able to calculate how much you are over the limit. Getting qualified for Medicaid is mostly about reducing countable assets to an amount below the applicable limit.
Many people qualify by simply spending their excess assets, usually on nursing home care. But there are alternatives.
Many people qualify by simply spending their excess assets, usually on nursing home care. But there are other alternatives.
One way to get below the asset limit is to transfer excess assets in a way that will not result in the ineligibility period discussed in the chapter on gifts.
Even during the look-back period, an applicant (or a community spouse) may make penalty-free transfers of assets to:
A disabled or blind son or daughter. The son or daughter must meet the definition of “disabled” used by the federal government to award Social Security disability or SSI benefits, or meet the federal government’s definition of legal blindness.
A son or daughter under age 21.
Trust for a son or daughter who is disabled, blind, or under 21. Besides transferring assets directly to a child who meets one of these criteria, a penalty-free transfer can also be made to a trust for that child’s benefit. A trust may be more appropriate for someone who suffers from a cognitive impairment or has trouble managing money.
The community spouse. Assets may be freely transferred between spouses with no penalty. So an applicant who must spend down to $2,400 may transfer a countable asset worth $100,000 to his or her spouse.
However, this exemption gets you only so far. Remember that the community spouse has a limit (the CSRA) on countable assets.
Trust “established solely for the benefit of an individual under 65 years of age who is disabled.” This exemption specifically includes transfers to a so-called “self-settled” special needs trust that a disabled person under age 65 may create, using his or her own assets.
An applicant who resides in a nursing home because of a disabling accident or condition, and is not yet 65, can qualify easily by creating such a trust and putting excess assets into it. The trust is an exempt asset, and can pay for things to enhance the recipient’s life, such as medical equipment, therapy, private nurses or aides, entertainment, and so on.
This exemption is not limited to the applicant’s own self- settled special needs trust, however. It applies to transfers made to a trust for any disabled individual under age 65, so long as the trust is established for the disabled individual’s “sole benefit.” Under Pennsylvania Medicaid guidelines, a “sole benefit” trust has certain specific requirements, and should be drafted by a lawyer experienced in this area of the law.
Some asset transfers apply only to the personal residence of the applicant (or community spouse). Title to that residence may be transferred penalty-free to:
The community spouse.
A caregiver child, that is, a son or daughter who resided in the applicant’s home for at least two years before institutionalization, and who provided care which permitted the applicant to reside at home rather than in an institution.
A son or daughter who is disabled, blind, or under 21.
Sibling with an equity interest. If the applicant’s sibling has an equity interest in the residence, and has resided there for at least one year immediately before the applicant was institutionalized, there is no penalty for deeding the applicant’s interest to that sibling.
Example: Two sisters who never married live in a house they inherited from their father, and which is titled jointly in their names. One sister moves to a nursing home and applies for Medicaid. She can deed her interest in the house to the other sister with no penalty.
Tax refund. You may recall from the section on Exempt (Non- Countable) Assets that a federal tax refund received by an applicant, recipient, or community spouse is not countable for 12 months after it is received. During that 12 months, a federal tax refund may be gifted away without penalty.
Other exemptions. Medicaid law contains several other transfer exemptions that are hard to define with any precision:
Most of the exempt transfers allowed by Medicaid law are unambiguous. For example, if an applicant can prove that her son receives Social Security disability benefits, there will be no doubt that a transfer to that son is exempt.
But what constitutes a transfer “made exclusively for a purpose other than to qualify” for Medicaid? Suppose an applicant paid for a year of his granddaughter’s college tuition four years ago when he was healthy, employed, and age 61, but then recently suffered a sudden, massive stroke that landed him permanently in a nursing home at the relatively young age of 65.
Most of the exempt transfers allowed by Medicaid law are unambiguous.
That applicant would have a good argument that the transfer of assets to his granddaughter for tuition was made with no thought of spending down to qualify for Medicaid. An administrative law judge hearing the case may rule exactly that way.
But that doesn’t mean that paying for a grandchild’s college tuition is always an exempt transfer. A case in which an applicant paid her grandson’s college costs six months before applying for Medicaid, when she was already age 92 and living in an assisted living facility, would look much different to a caseworker or judge.
These three other exemptions have their uses, but whether or not they will be approved in any particular instance is highly dependent upon the specific facts of the case.
In the case of a transfer “made exclusively for a purpose other than to qualify” for Medicaid, the state will normally presume that a transfer during the look-back period was a gift.
However, the regulations specify some situations in which that presumption is considered to be rebutted, including transfers made as a result of a court order or written settlement of legal action, and disability or unexpected loss of assets or income after the transfer was made. This list does not preclude other circumstances in which a transfer will be found to have been made for a purpose other than to qualify for Medicaid, but items on this list have the advantage of being recognized in the regulations.
Recall from the section on “Gifts and the Look-Back Period” that the law imposes a transfer penalty only if the transfer is made for less than fair consideration.
No penalty applies to asset transfers made in return for fair market value.
That means that if you spend money, and get fair market value for what you spend, there is no penalty. (Example: Spending money from your checking account on nursing home care at the facility’s usual rate.) Likewise, if you transfer title to something you own, and receive fair market value in return, there is no penalty. (Example: You deed your house to your son and he gives you a check for its value, as shown in an independent appraisal.)
An acceptable way to spend down is to pay for goods and services that you need, or that have a legitimate purpose, such as nursing home care, legal services for Medicaid planning, the withholding of taxes, and normal household expenses.
You can also spend down by buying assets that would be exempt, such as an irrevocable burial reserve, new car, replacement furnace, and so on.
