The Medicaid Spenddown Is Counterintuitive – Get Help
One of my clients noted as I explained the Medicaid spenddown that, logically, the result did not necessarily make sense. Actually, the review of a Medicaid spenddown will likely be the most illogical financial exercise clients have ever encountered. It does not make sense to most financial planners or investment advisers and, frankly, advice given during this time by professionals unless they actually file Medicaid applications is likely to be wrong. The result is that mistakes during this period can easily cost tens or hundreds of thousands of dollars and this is even if the client is not thinking of sophisticated planning.
The Medicaid spenddown is that time when a client is in a Medicaid certified nursing facility or is planning to receive at-home care under Medicaid and is spending assets before qualifying for benefits. The spenddown period is counterintuitive. Whatever you think you should do with money is probably the reverse of what should be done.
Here is why. Contrary to standard procedure when investing for retirement, where you are looking to maximize your assets, under the spenddown, the government, before it will pay, is looking not to how you have maximized your assets but to how much is left. When you reach a certain point, if you have completed all the necessary paperwork, provided all the necessary documentation, not gifted or, if you have gifted, have provided otherwise to take care of penalties, and are medically eligible and in a proper facility for Medicaid, the application should be granted. These are big “if’s” and are not automatic and, besides, how you spend now can determine your standard of living, especially for a spouse, for the indefinite future. If you spend liberally as long as you have not made any major mistakes such as gifting, you might qualify earlier so there can be benefits for spending. Spending wisely is not the same as spending the least.
Here are some examples.
At one point I was approached by a business acquaintance who stated that a relative was on Medicaid and recently passed away. My acquaintance wanted to know how the funeral would be paid. I was surprised to learn that no one had explained that burial reserves are established during the spenddown. Because none was established, the family now needed to contribute several thousand dollars from their own funds to pay for the funeral. That was unnecessary but now, without funds, too late to correct.
Another man explained to me that his mother passed away while she was on Medicaid. “Of course,” he said, “there was nothing left.” He worried about his brother who had polio. His mother’s house that had also been his brother’s home was sold and his brother had been homeless. His brother, as a disabled child, could have qualified, under a federal government exception, to have the home transferred into his name with no penalty and his mother still could have qualified for Medicaid. No one explained this to them.
A client of mine was a second husband. His wife appointed her daughter who was not my client as power of attorney. My client’s stepdaughter, hearing that funds, in general, should be divided 50-50, forged ahead and divided her mother and stepfather’s accounts equally, paying out all of what she believed to be her mother’s share to a nursing home. Aside from the fact that she did not have authority to deal with her stepfather’s funds, she also did not take into account that her stepfather was entitled to a burial reserve that did not need to be taken from his “share” or that his expenses in assisted living would give him a higher shelter allowance or that he should be entitled to a portion of his wife’s monthly income. By the time she was done, by conservative estimates, she had lost her stepfather $30,000. We were able to recover this when her mother passed away through funds from sale of the house but to know how to do this we needed to know the spenddown and estate recovery rules also.
One family was told by a government employee in another Pennsylvania county that they should not transfer the family house from joint name into the name of their father who was in the community because the house “belonged to the government anyway.” This was not true and we typically transfer the house into the name of the healthier spouse.
When in doubt, families should check with elder law attorneys who actually file Medicaid applications. It can make a substantial difference.
For more, listen to “50+ Planning Ahead” a weekly radio program on WCHE 1520 on every Wednesday from 4:30 pm to 5:00 pm with Janet Colliton, Colliton Law Assocs., PC, and Phil McFadden of Home Instead Senior Care.
About the Author Janet Colliton
Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.