The spenddown: Understanding medicaid estate planning

Part of estate planning involves making sure that you or your loved ones are taken care of as you age. Nursing homes, assisted living facilities and other forms of long-term care can be quite costly, however. It’s not unheard of for a person to quickly exhaust their life savings attempting to pay for critical care and assistance. That’s where Medicaid comes into play.

In order to qualify for Medicaid, however, an individual cannot be “over resourced.” Today, we’re going to discuss how you can use a Medicaid spenddown to help you protect your estate in times of need.

Qualifying for Medicaid

What do we mean when we say “minimally resourced?” In order to qualify for assistance from Medicaid, an individual must meet certain asset and income requirements. To qualify for Medicaid in NY, an applicant must:

  • Be 65 or older
  • Blind or otherwise disabled
  • Possess $16,800 or less in individual assets
  • Possess $24, 600 or less in assets when combined with a spouse
  • Have a monthly income of $934 or less for an individual or $1,367 for a married couple

Predictably, those income thresholds are on the low side. In order to lower one’s income and assets without sacrificing your entire estate involves what’s known as a Medicaid spenddown, otherwise known as the excess income program.

What is a spenddown?

A Medicaid spenddown involves using legal techniques to lower your monthly income and overall assets in order to protect the life you’ve built for your family. That means lowering your monthly income below that $1,367 shared threshold. Below, we’ve listed some of the best spenddown strategies to help you get the care you need while maintaining your legacy.

Spenddown strategies

Spenddown strategies vary on a state-by-state basis. For example, certain states allow the following techniques:

  • Purchasing assets for your spouse such as a car or home
  • Paying down debt (credit, mortgage, etc.)
  • Pre-paid funeral expenses
  • Transferring assets, such as a home or automobile, into another person’s ownership
  • Setting up a special needs trust in case of verified disability

There are, however, dedicated programs, like the ones in New York State, that give potential recipients a different pathway to Medicaid eligibility. The Excess Income program allows you to take medical debt and apply it against your income threshold. The important thing to keep in mind is that medical debt can be outstanding. It doesn’t have to be paid off in order to benefit you.

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