What is a Medicaid spend-down?

As your parents continue to age, they may face increased health problems that could ultimately make it necessary for them to move into a Florida nursing home. But the sad truth is that nowadays, no one other than an uber-wealthy person can afford to pay the costs of long-term nursing home care. For most people, Medicaid becomes the only viable solution.

While Medicaid pays for long-term care, it also, however, has stringent eligibility requirements that in all likelihood will make it impossible for your parents to qualify unless you help them do some preplanning well in advance of their likely need for it. Such preplanning goes by the name of a Medicaid spend-down.

How the spend-down works

It likely will shock you to learn that the cutoff point for Medicaid eligibility is $2,000 worth of assets for an individual and $4,000 worth for a couple. However modest your parents’ standard of living is, virtually no one owns a mere $2,000 worth of assets. If your parents own a home, that by itself will put Medicaid out of reach for them.

Consequently, as U.S. News reports, a Medicaid spend-down represents a perfectly legal way to impoverish your parents so as to make them eligible for the Medicaid benefits they will need in order to avail themselves of long-term nursing home care.

Look-back period

You need to realize that accomplishing a Medicaid spend-down for your parents presents you and them with many challenges. Not only must you be very careful when it comes to getting rid of your parents’ assets, you also must complete the process at least five years prior to the date on which your parents apply for Medicaid. Why? Because per the Deficit Reduction Act of 2005, Medicaid personnel have not only the right, but also the duty to review all the financial transactions your parents made during the five-year period prior to their Medicaid application. Should they find anything that smacks of fraud, they will disqualify your parents.

Given the complexity and potential pitfalls of a Medicaid spend-down, this does not represent a do-it-yourself project. You and your parents need the help and guidance of a knowledgeable estate planning attorney in order to accomplish the spend-down legally and in the allotted time.

One option is for your parents to establish an irrevocable trust into which they place all their assets while naming themselves as the trust beneficiaries and you or some other trusted person as the trustee. Once they transfer ownership of their assets from themselves to the trust, they no longer own them personally and therefore have effectively impoverished themselves.

This is general educational information and not intended to provide legal advice.