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Medicaid’s Spend Down – Don’t Get Caught Short (Part 2)

Last week we were discussing Jeff’s difficulties spending down his mom’s remaining assets, not getting caught with too much at the end of the month to qualify for Medicaid, but not enough to cover the private pay rate.  So how does one avoid this Medicaid “trap”?

As we approached the final few months before the targeted Medicaid pickup date, we needed to project all expenses and income each month.  Knowing that Medicaid        allows the prepayment of funeral expenses, Jeff had wanted to set up an irrevocable burial months ago but I had told him, “not yet”.

I wanted him to wait till the last month or so, because then we would know how much he would need to commit to a funeral.  If, for example, Mom has $20,000 left in her bank account and Jeff purchases a prepaid burial for $7500, after paying the nursing home another $10,000 he’ll have $4000 left, not enough for another month at the private pay rate and too much to qualify for Medicaid.  Jeff was puzzled at my calculations until I reminded him of Mom’s income of $1500 per month.

I explained to Jeff that the prepaid burial plan is an irrevocable one.  Once you put funds in, you can’t take them back out if you decide later you put too much in.  You also can’t put a lump sum in and then decide later how the money will be spent.  You must make the choices of funeral services and write a check – in the exact amount – payable to the trust.  But, there is no limit to how much you can put into this irrevocable trust.  That flexibility is why I wanted Jeff to wait till we know the exact amount we need to spend down.  Of course, we had to also be aware of any other outstanding bills, such as medical co-pays, that might be incurred.  It all would affect our calculations.

Jeff was thankful for our guidance.  He thought it would be as easy as getting Mom’s bank account under $2000 and filing the application.  He didn’t understand the timing element.  He certainly didn’t want to get another $10,000 bill from the nursing home that he couldn’t pay.  The nursing home was also happy to know that there would be a smooth transition from private pay to Medicaid, something that doesn’t always happen.  They were thrilled that we handling the Medicaid application.