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SUCCESS STORY OF THE MONTH – SPENDLESS SPENDDOWN

Husband (the “institutionalized spouse”) enters into a nursing home in November 2018 while his 70 year old wife (the “community spouse”) lives at home. Husband has no long-term care insurance and his income is insufficient to pay for his care (generally at least $5,000 to $6,000 per month for a semi-private room in Texas). If government assistance (Medicaid in this case) is not sought, the assets of the couple could be completely depleted leaving the community spouse with virtually nothing to live on for the rest of her life.

Prior to the government paying out any benefits to help pay for the institutionalized spouse’s care costs, the government has rules for eligibility determination. In cases where one spouse is in a nursing facility and the other lives in the community (as in this case), the government takes a “snapshot” picture of the “countable” (some assets such as home and one car do not count) resources as of the first day of the first month of continuous institutionalization for 30 days. 

In our case, the snapshot date (November 1 since institutionalization began in November). It doesn’t matter if the resources are the separate property of the community spouse (Medicaid is based on federal law). The countable resources as of November 1, 2018 were $104,000 consisting of various checking and savings accounts, the cash surrender value of a life insurance policy, real estate other than the homestead and the community spouse’s IRA (which was the largest countable resource as it is approximately $52,000). The “Protected Resource Amount” for the community spouse in this case is ½ of the countable resources as of the snapshot date. As a result, the Protected Resource Amount would be $52,000 (½ of $104,000). The government then looks at the “non-countable” resource income of the couple. This is typically the gross Social Security income and pension income. If the income is less than the “minimum monthly maintenance allowance” (which is presently $3,160.50 per month in year 2019), then the Protected Resource Amount can be expanded. In other words, if the income of the couple was $2,500 per month, then the community spouse would likely (depending on interest rates) be able to keep all $104,000 without spenddown. These rules were implemented around 30 years ago to prevent spousal impoverishment and divorce to achieve Medicaid. 

However, in our facts, the combined non-countable resource income of the couple exceeds the minimum monthly maintenance needs allowance of $3,160.50 resulting in no permitted expansion and there would not be eligibility until the countable resources were $52,000 or below as of the first day of a month. So how did we achieve a “spendless spenddown”? Although the Texas Health and Human Services Commission does not yet have written policy of their verbal announcement in the second half of year 2018 regarding retirement accounts, there has been assurance that their announcement will be honored. The announcement was that if the Medicaid applicant is over 70½ and takes the required minimum distribution (in “payout status”) of his or her retirement account (such as an IRA, 401k or SEP), then such retirement account would not count as a resource. If the Medicaid applicant or their spouse was under 70½, then the IRA would count unless invested in an annuity. In this case, the community spouse (who has a $52,000 IRA invested in mutual funds), did not turn 70½ until January 31, 2019 and she did not want to invest in an annuity. So, we simply requested the community spouse make her required minimum distribution on January 31, 2019 (when she turned 70½) thus resulting in changing the resource from being “countable” to being “non-countable” as of the first day of the next month (February 1, 2019 in this case) achieving spenddown. It is anticipated that there will be written policy clarification of the rules regarding treatment of retirements in the near future.

If you are interested in learning more please sign up to attend our free “Estate Planning Essentials” workshops either on Thursday, February 28, 2019 at 1:00 p.m. or Saturday, March 16, 2019 at 10:00 a.m. by calling (214) 720-0102 or signing up online at www.dallaselderlawyer.com.

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