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Monday, October 8, 2018

What Does It Mean To “Spend Down?”

Do you have a plan for paying for your long-term care? Most people do not, which limits one’s options and leads to poor choices. That’s why there are so many horror stories out there about seniors losing properties that have been in their family for years because they fell and broke a hip.

Planning ahead is the only way to make long-term care costs manageable. For most people that means planning on relying on Medicaid. Though this popular government program was designed to be a last resort for people who have no other way to finance their long-term care, it has become the single largest payer of nursing home bills in America.

In order to qualify for Medicaid, an individual must have a low income and be under the age of 21 or over the age of 65, or be disabled or blind. The exact income eligibility requirements vary from state to state. People who have too many assets or make too much money to qualify can “spend down” in order to become eligible for for the program.

Spending down applies to two things: income and assets.

An income spend down is done on a month to month basis. Say, for example, that the income threshold for Medicaid coverage is $500 per month, but you get $600 in income per month from Social Security and your pension. The Medicaid rules allow you to spend the difference between your income and the coverage threshold on certain expenses, and then qualify for assistance.

Spending down assets is a bit more involved, and takes advanced planning. Say you have some leisure property that you would like to pass on to the next generation, but you also need a way to pay for your long-term, end-of-life medical care. Gifting the property to a family member will mean you have to pay taxes on that gift. Selling it to a family member for less than it is actually worth could put you or your family member on the hook for the full value of the property. Transferring the property to an irrevocable trust may allow you to enjoy the property without having it count as one of your assets.

Working with an experienced elder law attorney is critical if you want to spend down your income and assets properly. Failing to follow the many confusing rules that govern Medicaid could mean the government will come and claw back assets or deny you needed benefits.

 


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