Protecting a Non-Applicant Spouse’s Income, Assets & Home When Applying for Medicaid Long Term Care
When one spouse of a married couple requires Medicaid long term care, that spouse must surrender all their income to Medicaid and have very limited assets. In many cases, this puts the “well spouse” or non-applicant spouse in a position of financial hardship. Fortunately, there are both Medicaid mandated protections and family implemented protections that can protect the non-applicant spouse’s income, assets and their home.
How to Protect One Spouse's Income When the Other Spouse Applies for Medicaid
Before discussing protecting the spouse income, we must first understand how Medicaid treats the beneficiary’s income. When the Medicaid recipient receives long-term care in a nursing home, the room, meals, and care are all included in the daily rate. Medicaid will pay the fixed daily rate to the nursing home. If the Medicaid recipient has an income, they have to surrender all of that income except for a small personal needs allowance. In many states, this allowance is below $100 a month.
Non-applicant spouses are allowed to keep their own income but with many elderly couples, one spouse generates the majority of the couple’s income and if that spouse goes into a Medicaid nursing home, they must surrender their income. This can potentially leave the non-applicant spouse financially impoverished. This is why Medicaid offers the non-applicant spouse (also called the community spouse), an allowance called the Minimum Monthly Maintenance Needs Allowance (MMMNA) that can be taken from the applicant spouse’s income instead of surrendering that money to Medicaid.
As of July 1, 2021, this MMMNA is $2,177.50 a month in 48 states and the District of Columbia. To give an example, let’s say the non-applicant community spouse has an income of $1,000 a month. Medicaid will allow the institutionalized Medicaid recipient to transfer $1,177.50 of their income to the community spouse in 48 states and the District of Columbia. In Alaska and Hawaii, these figures are higher.
In some cases, the monthly allowance can be greater than what has been set by the Medicaid policy in the particular state where the Medicaid recipient resides. This primarily happens when the non-applicant community spouse’s shelter costs are over a certain amount. As of July 1, 2021, Medicaid has deemed the shelter allowance $653.25 in 48 states.
When protecting the spouse who lives in the marital home co-owned by the Medicaid recipient, the mortgage, property taxes, and homeowner’s insurance can all be considered shelter costs. Other factors that count as shelter costs are the standard utility costs for cooling, heating, electricity, basic phone service, sewage, garbage, and water costs.
Adding up the figures that impact the Needs Allowance can be rather complicated. Any spouse who suspects this Allowance should be increased for them should seek the counsel of a Medicaid expert to make sure they receive the full benefit to which they are entitled. Learn more about MMMNA.
How to Increase One Spouse’s Income When the Other Spouse Applies for Medicaid
The spousal income protection rule described above comes into play when a non-applicant spouse has limited income. However, it is possible to increase a non-applicant spouse income using a Medicaid-compliant annuity. In brief, the married couple takes their assets (their savings, pensions, etc) which would have made them ineligible for Medicaid due to Medicaid asset limit rules and they purchase an annuity with those assets. The annuity then pays back to the non-applicant spouse a monthly income that can exceed the MMMNA discussed above.
It is very important to know that the rules associated with a Medicaid annuity and very rigid, they are state-specific, and the amounts must be calculated specific to a couple’s exact financial situation. Minor violations of any of Medicaid rules can result in a denial of benefits or a penalty. Families considering this approach are strongly encouraged to work with a professional Medicaid Planner.
How to Protect One Spouse's Assets When the Other Spouse Applies for Medicaid
Medicaid places limits on the assets of both the applicant and their non-applicant spouse. Furthermore, unlike with income, all assets are considered to be joint assets by Medicaid, regardless of in whose name an asset is held. During the application process Medicaid counts up the value of all of the couple’s non-exempt assets (more on exempt assets follows) and, if they are over the asset limit, they are required to spend-down their assets until they reach the Medicaid asset limit. Assets cannot be given away or sold under market value and the spend-down must be spent on Medicaid acceptable purposes.
So how does one protect assets for the spouse? Fortunately, there are many ways by which to do so. First, we will discuss the Community Spouse Resource Allowance (CSRA). This is a federal Medicaid rule (but how it is implemented is different in every state), that allows an applicant spouse to allocate a portion of the couple’s assets to their non-applicant spouse. Depending on state of residence, applicants are permitted to retain approximately between $1,600 and $15,000 in assets. Non-applicant spouses are permitted to retain between $27,480 and $137,400. Worth noting, these figures change every year. More on the CSRA.
The CSRA is an example of a Medicaid mandated protection. The other protections discussed here are Family Implemented Protections, meaning these are steps proactively taken by the Medicaid applicant or their family to further protect a non-applicant spouse. The reason for further protection is typically to ensure there are adequate financial resources to pay for care should the non-applicant also require care at some point.
Prior to discussing Family Implemented Protections, one should understand Exempt and Non-Exempt Assets (also called Countable and Non-Countable Assets). Countable assets include stocks, bonds, CD, checking and saving account, vacation home, recreation vehicles, timeshare, boats and anything that can be sold and converted to cash. Exempt assets are those assets consider essential to living independently. A home, vehicle, clothing, furniture and appliances are all exempt assets. Pensions and 401Ks can be either exempt or non-exempt depending on the state in which an applicant or couple reside.
Paying Off Debt
The first and most obvious, Medicaid-acceptable method to protect a spouse’s assets is to pay off any debt, be that credit cards, loans, mortgages etc. Paying off debt reduces the couple’s countable assets and therefore opens up space under Medicaid’s asset limit.
Purchasing an Irrevocable Funeral Trust
Pre-paying for one or both spouses’ funerals is an acceptable approach to reduce assets for Medicaid eligibility purposes. In some states, couples can pre-pay as much as $25,000 for their funeral expenses thereby reducing their countable assets as much and freeing up space under the asset limit. The rules regarding funeral trusts are state-specific and complicated so it is critically important that one consult with a Medicaid expert prior to purchasing / pre-paying for any funeral related items.
Home Modifications & Improvements
A home is an exempt asset as long as one spouse lives in the home regardless of the home’s value. Another common approach to reducing one’s countable assets is to put that money into the home. This has the dual benefit of reducing assets while making the home safer and more livable for an aging individual. For example, one can add a stair-lift, walk-in bathtub / shower and wheelchair ramp to a house to make it safer, more valuable and easier for an elderly person to live safely in.
There are many other approaches to protecting a spouse’s assets too complex and state-specific to be discussed here. It is recommended that one consult with a Medicaid planning professional.
How to Protect One Spouse's Home When the Other Spouse Applies for Medicaid
When one spouse of a married couple moves to a nursing home and the non-applicant, or community spouse continues to live in the home, the home is protected from Medicaid regardless of the home’s value. If the Medicaid spouse passes away in a nursing home, the community spouse can still keep the home. However, depending on your state, Medicaid may follow up to collect any reimbursements after the death. This is called the “Medicaid Estate Recovery Program” (MERP) and it is one scenario in which proactive steps toward protecting the home could be required.
In 1993 Congress passed the “Omnibus Budget Reconciliation Act” into federal law. This act requires all states to enforce the Medicaid Estate Recovery Program. Through MERP, states try to recuperate some or all of the costs their Medicaid program paid to care for an individual that resided in a Medicaid nursing home from the beneficiary’s estate when that individual has passed away.
There are a few ways in which a couple can protect their home for the non-applicant spouse. Most relevant are Ladybird Deeds and Medicaid Asset Protection Trusts. Worth noting is that there are other ways to protect the home, but these are not necessarily designed to protect the home for a non-applicant spouse, rather to protect for inheritance purposes.
Ladybird Deeds are a way of giving the non-applicant spouse complete control over the home. Upon the death of the co-owner (the nursing home resident), the deed automatically transfers the home to the spouse without it going through probate (the normal court process through which property is transferred). If one’s home does not go through probate, Medicaid cannot try to collect reimbursement from it.
Medicaid Asset Protection Trusts (MAPT) is another home protection strategy that allows the Medicaid beneficiary’s assets to be excluded from Medicaid asset limits. In this case, the home is put into the Trust. However, to avoid violating Medicaid’s look-back period rules, the home must be put in the Trust either 60 months or 30 months preceding the date of Medicaid application (depending on the state in which the applicant resides). To create a MAPT, the couple should seek professional counsel as there are details specific to Medicaid and to each state.