If your parents have reached the stage of life where their age or health makes the need for future nursing home care a real possibility, you may wish to look into having them do a Medicaid spend down now. Why? Because today’s long-term care costs exceed the financial resources most people have, even after they deplete their savings. If you – and they – think that Medicare will cover them, think again. It does not. Nor does virtually any private insurance. Consequently, they likely will need to apply for Medicaid benefits.
Medicaid, however, has stringent eligibility criteria. In general, an individual must own no more than $2,000 in assets, which doubles to $4,000 for a couple applying jointly for Medicaid. Regardless of your parents’ wealth status, they almost assuredly own more than that. Now what?
Medicaid spend down
US News reports that many people in your parents’ position use a perfectly legal strategy to solve this problem. It goes by the name of a Medicaid spend down.
As its name implies, your parents “spend down” their assets so as to qualify for Medicaid. This can be a tricky proposition, however, and not one you or they should embark on without proper legal advice, counsel and representation.
Most people establish an irrevocable trust into which they place their assets. If your parents decide to go this route, they become officially “impoverished,” thereby qualifying for Medicaid. The trust owns all their assets; they no longer personally own them.
The main thing to remember about a Medicaid spend down is that it must occur five or more years before your parents actually need to apply for Medicaid benefits. Medicaid officials look over applicants’ financial transactions for the five years preceding their application. If they find something that looks like a deliberate impoverishment attempt, they deny the application.