Medicaid Spend Down

4 Spend-Down Behaviors That Could Be Risky

The cost of nursing home care is extraordinarily expensive, and Medicaid won't help pay if you have more than $2,500 in "countable" assets. Sometimes people decide to "spend down" their excess assets to qualify for Medicaid benefits. But this can be risky. If the Medicaid agency thinks you're bending the rules, you risk losing eligibility for five years. And current crackdowns by Medicaid are much more common than in years past.

Be Aware of Risky Spend-Down Behaviors

  1. Gifts to children or friends: All transfers of assets made within five years of applying for benefits will be scrutinized by Medicaid, and a penalty period (i.e., a period of ineligibility) will be imposed for any expenditure for which fair market value was not received. The penalty period can range from one month to five years under current law. If you want to give assets to a child or friend, you must have enough in other assets to privately pay for the nursing home care during the resulting penalty period.

  2. Religious tithing: Some Medicaid applicants are surprised to learn that religious tithes can create a period of ineligibility for benefits. If you can prove a history of such tithing, you may be able to avoid the penalty period. Once you're eligible for Medicaid, tithing generally must cease.

  3. Paying for your grandchild's education: Payment of a grandchild's college expenses within five years of applying for Medicaid benefits must be revealed and can cause you to be ineligible. The penalty period may be waived if you can prove that such a gift was not made for purposes of meeting the Medicaid resource limit.

  4. Prenuptial agreements: Prenuptial agreements in which each spouse agrees to be individually responsible for his or her own nursing home costs are generally not honored by the Medicaid agency. Before spending down assets or applying for benefits in reliance upon a prenuptial agreement, you must know how the Medicaid agency will interpret such actions.

Make a Plan

While there are many pitfalls in the Medicaid application and spend-down process, there are also exceptions and planning opportunities. Before applying for benefits, you should become familiar with the various requirements of your state.

over 3 years ago, said...

I'm curious. If for some reason, a person's Medicaid application is denied and the penalty is applied, how does the person pay for care during the penalty period? I'm assuming that by the time the person applies for Medicaid his or her assets are gone and there is no way to pay for care except for Medicaid. If the penalty is assessed for something the individual did a few years back, does the person have to live in a cardboard box on the street until the penalty period has passed? I'm being sort of facetious here, but it is a serious question.

over 3 years ago, said...

Good advice, thank you. I made a different error with Medicaid planning that cost my family many thousands of dollars. My mother transferred her cottage to me before our state's "look back" period, so it would not have been considered in her Medicaid application, but when I sold the cottage to help pay for her memory care facility, I put $100,000 of the sale into her checking account, thinking it would be easier to continue to pay for her care using her checking account, for bookkeeping purposes. Medicaid then rejected her application, saying that the money was a "gift" from me to her. I lost an appeal and we had to "spend down" that money before she would be eligible. The moral of the story? Seek the advice of a financial planner familiar with Medicaid, and never put your own money into your parent's checking account to help pay for their care. --author of the book "Inside the Dementia Epidemic: A Daughter's Memor"