Recently, Mary Smith (names changed for privacy) came into our office seeking help because her 89 year old husband, John had entered a nursing home after suffering a severe stroke. He was a General Motors retiree and they had lived in the same home for 51 years. Their assets consisted of their Flint home, 1 vehicle, and $150,000 in checking, savings and CD accounts. Like so many clients, Mary was terrified the she was going to lose everything, including her husband’s pension and Social Security income. She was relieved to learn that the Medicaid rules allow her to protect their assets so she can continue to live in her home. Here are a few of the options Mary chose:
1. Pre-pay funeral expenses.
Under the Medicaid rules, it is permissible to pre-pay funeral expenses. This is often referred to as converting countable assets into exempt assets. If done correctly- typically through a life insurance policy or irrevocable funeral contract, the pre-paid funeral is an exempt asset.
2. Home maintenance/repairs and a new car.
The Smith’s home was in need of some updates and their car was 12 years old. Because the home and 1 vehicle are exempt assets, it is permissible for Mary to spend money on home maintenance or repairs and buy a new car.
3. Spousal annuity trust.
I explained to Mary that the Medicaid rules permit a special trust called a “spousal annuity trust” or “for the benefit of trust” to be used to protect excess assets for her benefit. Mary was skeptical at first, but I showed her that the Michigan Department of Human Services (DHS) has written the Medicaid rules to provide a spouse with the option of actually not having to spend down one-half of their countable assets. For example, with $150,000 in countable assets, one-half or $75,000 would be protected for Mary – this is called the Community Spouse Resource Allowance (CSRA). The remaining $75,000 would be subject to spend down. Instead of actually spending the $75,000, Mary could establish a spousal annuity trust for herself and transfer the entire $75,000 into the trust. Provided that the $75,000 held in trust is distributed to Mary over a period not less than her life expectancy (i.e. 6.62 years), then all of the trust assets will be protected in addition to the $75,000 CSRA. In other words, Mary can keep all of the money without any spend down!!
4. Burial space items.
The Medicaid rules permit the purchase of burial space items for children and their spouses without incurring any penalty. Burial space items include burial plot, casket, crypt, vault, headstone, etc. Please keep in mind that Medicaid planning is very fact-specific and not all of the strategies are advisable in every situation. Before spending down all of your hard earned assets, be sure to consult with an experienced elder law attorney.