A Medicaid professional consultant helping an elderly woman to protect her assets and money from the nursing home spend down.

How to Avoid the Nursing Home Spend Down

Using Medicaid to reduce nursing home costs

Summary: Seniors who are entering a nursing home all have the same concern. They will be required to spend down their assets in order to become eligible for Medicaid. This not only affects the person going into the nursing home, but the healthy spouse as well. This requirement leaves the healthy spouse with little to nothing to live on. Spend-downs are the biggest concern for seniors. Plan to Reduce the Cost of the Nursing Home

We discuss some ways to avoid the Medicaid nursing home spend down rules. The protection of assets is a major challenge for seniors. Currently, the government mandates that all assets are to be spent down if either spouse has to go into a nursing home. In other countries, such as Canada, this is not required. The government there believes that these people have paid into their Medicaid their whole lives, so the benefits are part of their rights. If only that were the case in the United States!

Here, the all-mighty government forces seniors to deplete their assets. Until this is done, they will be solely responsible for covering the cost of nursing home care. This is true even if the senior has a private plan to help pay for the care. In addition to this awful mandate, there is no cap on the amount that has to be spent down. Every state must adhere to these new regulations, or they will run the risk of losing federal funding. Basically, this means that no matter how much or how little seniors have, they can have absolutely nothing left. Only then will Medicaid pick up and cover the nursing home costs. What does this mean for the healthy spouse? It means that years of hard work and intelligent saving and spending has left them with nothing! They have no choice but to watch their assets diminish to the point of non-existence, and there is nothing that can be done about it. After years of planning for retirement and investing wisely, the healthy spouse will be left with no assets or resources, while the sick spouse remains helpless.

5-Year Spend Down Rule Before Entering a Nursing Home - How to Plan Accordingly

If you plan to prepare for the possibility of you or your spouse ending up in a nursing home, you must take action five years before the individual enters the nursing home. The best and safest way to prepare is by using an irrevocable trust such as an UltraTrust®. The trust must be irrevocable. In essence, all of your assets must be transferred to an independent trustee. This means you will no longer own the assets, and in the government's eyes, you own nothing.

To Avoid the Medicaid Spend Down Rule Transfer of Assets at Fair Market Value – With Gifting Taxes are Incurred

Keep in mind that the assets that are transferred must be at the fair market value. This is the price that a willing buyer and seller would agree upon. If you choose a different route, such as gifting your assets instead of using a trust, you will incur taxes. The taxable gift must have a legitimate appraisal. Whoever transfers the gift is responsible for the taxes. This means if you choose to gift your house to your child, you will have to pay the taxes on the gift, not your child.

Private Annuity to Transfer Assets – Before Entering a Nursing Home

Some people choose to sell their home outright. If this is done, cash will have to be exchanged. However, there are ways for a transfer of ownership to be made without the exchange of cash. This process is referred to as a private annuity. This is merely a contract between the original owner of the asset and the person who has the money to buy it. Instead of exchanging a cash amount, the new owner makes a promise to pay over the course of the transferor's lifetime.

Irrevocable trusts are still the best way to go if you are in need of hiding your assets. There is more information available on these trusts. This information can be found by visiting: