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Should your parents do a Medicaid spend down?

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Should your parents do a Medicaid spend down?

On Behalf of | Jul 15, 2020 | Elder Law

In these days of ever-increasing nursing home costs, your parents likely do not possess nearly enough financial assets to pay for long-term nursing home care. They therefore probably will have to apply for Medicaid benefits.

Unfortunately, however, Medicaid only pays for nursing home care for impoverished people. What this means is that to qualify for Medicaid, a person must have only $2,000 or less in assets. Together, a couple must have no more than $4,000 in assets. Undoubtedly your parents have considerably more than that, especially if they own their own home. They therefore face a dilemma: what to do in this Catch-22 situation?

Medicaid spend down

Many people who find themselves in the same situation as your parents choose to do a Medicaid spend down. U.S. News reports that a spend down amounts to a perfectly legal way by which your parents can impoverish themselves for Medicaid qualification purposes without losing the benefits of their assets.

A Medicaid spend down, however, can be quite tricky to accomplish since it requires full adherence to state and federal law. It also must occur at least five years before your parents intend to apply for Medicaid so as not to run afoul of Medicaid’s 5-year look-back period.

Many people find the wisest spend down strategy to consist of contacting an attorney to help them establish an irrevocable trust. If your parents choose to do this, they will transfer virtually all of their assets into the trust, at which point the trust owns the assets, not your parents personally. They, therefore, become impoverished.

Since the trust is irrevocable, your parents will never again own the assets they place into it. Consequently, they need to take great care to appoint a trustee – possibly you – who will wisely manage the assets and use the income they produce for your parents’ benefit.