Spending Down Your Assets to Qualify for Medicaid Benefits

A common planning technique for those seeking to avoid triggering the lookback penalty is to spend down assets until the applicant’s assets are under the Medicaid limit.[1] Spend down plans exploit the fact that the lookback penalty is not triggered if fair market value is received in return.[2] Thus, if the applicant spends her assets on goods and services that will not count as assets for Medicaid purposes, they can reduce their overall countable assets without triggering a lookback penalty. A spend down plan can be used instead of or alongside of a special needs trust.

Purchasing Exempt Property

Not all tangible property is counted as an asset for Medicaid purposes; some property is exempt. Thus, any assets spent on exempt property will result in a net reduction of countable resources. Perhaps the most important exemption is the homestead. Even if the applicant is moving to a nursing home, the applicant’s homestead is not a countable resource, as long as the applicant states an intent to return to the homestead.[3] However, the homestead equity is limited to $500,000 with annual adjustments for inflation,[4] at $603,000 in 2021.[5]

Other exemptions include:

• prepaid burial contracts,[6] irrevocable burial trusts,[7] burial spaces,[8] or funds set aside for burial,[9]

• income-producing property,[10] if the property produces income consistent with its fair market value[11] or if the income is required for self-support,[12]

• life estate interests,[13]

• life insurance policies with little or no cash surrender value,[14]

• one automobile and any additional vehicles over seven years old,[15]

• and household goods and personal effects,[16] including a wedding ring and an engagement ring, regardless of value.[17]

Additionally, transfers to spouses do not trigger a lookback penalty.[18]

Other Purchases

Using assets to purchase services for their fair market value very often results in an overall decrease in assets. For example, the applicant can go on vacation, hire a cleaning service, hire a lawn care service, or make safety and accessibility home modifications. In each of these examples, the disabled individual’s overall countable assets decrease despite receiving full fair market value. The disabled individual can even prepay for future services or future room and board.[19] However, when purchasing services, the applicant should be careful not to pay for services that benefit others, as this will be seen a transfer to that other person for less than fair market value. For example, if the disabled individual paid for a vacation with her cousin, the transfer of a free vacation to the cousin will result in a lookback penalty.

A similar spend down strategy is to repay debt. When a debt is repaid, fair market value is received in exchange for the transfer because the debt is reduced. Yet the applicant still decreases her overall countable resources. In addition, regular bills and expenses can be paid to decrease countable resources.

Annuities can also be purchased for spend down purposes, but the purchased annuity must meet some requirements to avoid a lookback penalty.[20] First, if the annuitant is not expected to live long enough to collect the annuity proceeds herself, then the annuitant will likely not receive fair market value and a lookback penalty must be incurred if the transfer took place within the lookback period.[21] Florida uses the Social Security Administration actuarial tables to determine life expectancy.[22] Second, the annuity must name the state of Florida as the primary remainder beneficiary or the secondary remainder beneficiary behind a community spouse, disabled child, or minor child.[23] Finally, the annuity must be irrevocable and nonassignable.[24] However, annuities established by an employee or employer, as described in Section 408 of the Internal Revenue Code, are not considered to be transfer for less than fair market value and are not required to name the state of Florida as the primary remainder beneficiary.[25]

[1] See Rosenshein v. Florida Dep't of Children & Families, 971 So. 2d 837, 840 (Fla. 3d DCA 2007) (“Applicants with some savings will be required to ‘spend down’ assets on long-term care services, that is, Medicaid will assume the cost of long-term care only after the applicant has exhausted most personal and private sources of funding”).

[2] 42 U.S.C. § 1396p(c)(2)(C)(i); SSA POMS SI 01150.007.A.1; ESS Public Assistance Policy Manual § 1630.20.00; Thomas v. Fla. Dep't of Children & Families, 707 So. 2d 954, 955 (Fla. 4th DCA 1998).

[3] 42 U.S.C. § 1382b(a)(1); 20 C.F.R. §§ 116.1212, 416.1212(c); FLA. CONST. art. X, § 4(a)-(b); ESS Public Assistance Policy Manual §§ 1640.0534, 1640.0543.01, 1640.0543.02. Additionally, the homestead may still be exempt if either a spouse or dependent relative lives continues to live in the homestead or if sale of the homestead would cause undue hardship to a co-owner of the home.

[4] 42 U.S.C. § 1396p(f)(1).

[5] ESS Public Assistance Policy Manual § 1640.0307.04; ESS Public Assistance Policy Manual, Appendix A-9.

[6] ESS Public Assistance Policy Manual § 1640.0509.

[7] ESS Public Assistance Policy Manual § 1640.0512.

[8] ESS Public Assistance Policy Manual § 1640.0516.

[9] ESS Public Assistance Policy Manual § 1640.0514.

[10] However, the income produced by the property is countable as income to the applicant. If the income disqualifies the applicant from receiving benefits, the income will likely need to be diverted into a Qualified Income Trust.

[11] Fla. Reg. 65A-1.712(2)(f); ESS Public Assistance Policy Manual § 1640.0548.

[12] ESS Public Assistance Policy Manual § 1640.0544.

[13] Fla. Reg. 65A-1.712(2)(b); ESS Public Assistance Policy Manual § 1640.0551.

[14] ESS Public Assistance Policy Manual § 1640.0551.

[15] 42 U.S. Code § 1382b(a)(2)(A); Fla. Reg. 65A-1.712(2)(e); ESS Public Assistance Policy Manual § 1640.0591.

[16] 42 U.S. Code § 1382b(a)(2)(A).

[17] ESS Public Assistance Policy Manual § 1640.0565.01.

[18] 42 U.S. Code § 1396(c)(2)(B)(i); POMS SI 01150.123.A.

[19] SSA POMS SI 01150.005.C.3.b-c.

[20] 42 U.S.C. § 1396p(c)(1)(F); Fla. Admin. Code. Ann. r 65A-1.712(3)(b)(1).

[21] ESS Public Assistance Policy Manual § 1640.0609.02.

[22] Fla. Admin. Code Ann. r. § 65A-1.716(5)(e).

[23] Fla. Admin. Code. Ann. r 65A-1.712(3)(b)(1).

[24] 42 U.S.C. § 1396p(c)(1)(G)(ii)(I).

[25] 42 U.S.C. § 1396p(c)(1)(G)(i); Fla. Admin. Code. Ann. r 65A-1.712(3)(b)(3).