When determining eligibility, assets and/or resources are generally placed in two categories:
- COUNTABLE ASSETS / RESOURES
- Bank or Investment accounts
- IRA’s, 401K’s, 403B’s, etc.
- CD’s, Stocks, Bonds, and Deferred Annuities
- Life insurance cash values (if DB is >$1,500)
- Real Estate (other than homestead – some exceptions)
- Additional Vehicles (some exceptions)
- Safety Deposit Box Collectables
- EXEMPT ASSETS / RESOURES
- Homestead - up to $552K if unmarried
- Homestead – no limit on value if married
- Household / Personal Goods
- One Vehicle of any value
- Irrevocable Funeral Services Contract
- Life insurance cash values (if DB is <$1,500)
The maximum countable resources allowed under eligibility guidelines is $2,000. If a person’s assets currently exceed this limit, the objective is to find smart and sensible ways to use excess funds. For a single or widowed individual, there are basically two options that exist in preserving countable assets in excess of the allowable $2,000.
The first is known as "spend down". Spend down can often encompass a wide array of attractive options such as:
- Paying for Nursing Home and/or other Medical Expenses
- Paying for Renovations or Repairs on an EXEMPT homestead
- Paying for an EXEMPT Pre-need funeral plan and/or Cemetery plot
- Paying for an EXEMPT car, Insurance Premiums, Legal Assistance, and/or Taxes
- Paying Off or Down Debt (mortgages, credit cards, and bank loans)
The second option is known as "structured gifting". This method can stand-alone or be used in conjunction with an appropriate spend down. Structured gifting is a legitimate and effective means of transferring assets to a family member, close friend, or charitable organization without incurring unexpected penalties under the “60 month look back rule”. Structured gifting can result in significant preservation of countable assets making it an appealing option to many people.
WARNING - Structured gifting is a strict method of planning that must be done in accordance with acceptable guidelines. Failure to do so can result in unfavorable transfer penalties. Therefore, it is strongly recommended that you consult with a professional before proceeding.
For married individuals, there are two additional asset preservation -- planning methods made possible by the Medicare Catastrophic Coverage Act (MCCA) of 1988. The MCCA provides certain financial protections for the community spouse.
The first protection is known as the Protected Resource Amount (PRA). After countable resources are determined, the community spouse is entitled to keep and therefore protect:
- 100% of countable assets up to $23,844 or
- 50% of available assets up to $119,220
The act also provides for the community spouse to keep 100% of the couple’s income up to $2,980.50 per month. However, there is no limit on the amount of income the community spouse can receive when the applicant's entire income is applied to the cost of care.
In order to preserve any excess countable assets, one might consider simply a petition before the Health & Human Services Commission of Texas to enhance/expand or raise the PRA as to protect not just part but all the couple’s assets. Such a petition is generally successful based on the fact that the community spouse is entitled to a maximum monthly maintenance allowance of $2,980.50. If the couple’s combined income is less than $2,980.50, the argument is made that all or a larger portion of the couple’s assets are needed in order to generate additional income. For example, if the combined income of both is only $2,500 per month yet they have $50,000 of excess assets, the case is made that the community spouse is entitled to the excess assets for the following reason. $50,000 earning a current CD rate of 1% would only generate an additional $500 per year or $42 per month of income. Added to the existing $2,500 of income we arrive at $2,542 per month, still well below the $2,980.50 minimum.
Lastly, if an appeal to enhance the PRA is not feasible, a couple can simply convert any excess assets into an income for the community spouse. This is accomplished by using what is known as a qualified pension or immediate annuity. Since there is no maximum on the amount of income the community spouse can receive, any amount of income generated by such a pension is protected for the community spouse. This option is attractive to many due to most if not all of the couple’s assets being preserved.
WARNING - Such pensions or immediate annuities must meet specific requirements in order to qualify. Therefore, it is strongly recommended that you consult with a professional before proceeding.
Finally, if you, or anyone you care about, are likely to need long-term care in the future, we encourage you to seek guidance by a qualified professional. Mistakes and costly denials can be avoided by taking proper steps to prepare before applying for assistance.