Medicaid planning is complex, especially when clients have excess countable assets that prevent them from qualifying for benefits. For elder law attorneys and Medicaid planning professionals, the key to success lies in understanding how to reduce these assets while preserving as much of your client’s resources as possible. A Spend Down eliminates excess countable assets that are currently precluding your clients from immediately qualifying for Medicaid, and they generally fall into three categories: exempt spend downs, basic spend downs, and advanced spend downs.
Exempt Spend Down/ Transfers
Exempt spend downs are often the first option to consider because they allow clients to transfer or reallocate assets without creating a Medicaid penalty period. These strategies take advantage of Medicaid’s rules that exclude certain transfers or resources from being considered divestments. For example, a client might transfer assets to a spouse or to a disabled child without triggering a penalty. Exempt spend downs are particularly valuable for clients with dependents who qualify for these exceptions, allowing them to preserve assets without such transfers imposing a Medicaid penalty period.
Basic Spend Down
When exempt options aren’t enough to reduce a client’s assets, basic spend-down strategies come into play. These approaches are straightforward and practical for most clients, focusing on the purchase of exempt assets, payment of permissible expenses, or addressing existing debts. For example, a client might make necessary improvements to their primary residence, such as installing a wheelchair ramp or replacing a roof. They could also purchase irrevocable burial reserves or funeral expense trusts. Additionally, clients can spend down by privately paying for nursing home care or other medical expenses until they reach Medicaid eligibility. Another effective strategy is paying down existing debts, such as mortgages, credit cards, auto loans, or other liabilities in the name of the Medicaid applicant or their spouse. These spend-down strategies not only help reduce countable assets but also ensure the client’s resources are used in meaningful ways that benefit their situation.
Advanced Spend Down
Sometimes, even exempt and/or basic spend downs aren’t enough to bring a client within Medicaid’s asset limits. This is where advanced spend down strategies come in. These techniques require careful planning and a deep understanding of Medicaid’s look-back period and penalty rules. One advanced option is intentional gifting, where assets are transferred to loved ones, triggering a penalty period of Medicaid ineligibility. While this might seem counterproductive, it can be a viable option when combined with other strategies. Another powerful advanced technique is purchasing a Medicaid Compliant Annuity. This approach converts excess assets into a stream of income for the client or their spouse, ensuring that the annuity complies with Medicaid rules to avoid penalties.
Recap
In most cases, it makes sense to follow a structured approach when implementing spend down strategies. Start with exempt spend downs whenever possible, as they carry the least risk and offer significant financial protection. Next, move to basic spend downs, which are practical and easy to apply. Finally, use advanced spend down strategies only when necessary, making sure to handle them with precision and a thorough understanding of Medicaid regulations.
Join Us For Our Upcoming Webinar: Mastering Exempt Spend Downs
If you’re looking to deepen your understanding of Medicaid spend down strategies, we’ve got an exciting opportunity for you. Join us for an upcoming webinar hosted by Todd Whatley, where he’ll take a deep dive into exempt spend downs and transfers. Todd will discuss when and how to use these strategies, provide real-world examples, and share practical insights to help you navigate this critical aspect of Medicaid planning. Don’t miss this chance to enhance your practice and better serve your clients.
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