The drawback to securing asset protection in this manner is that you no longer own the assets and may not have access or control of their investment or use. A better strategy is to gift the assets to a trust. This special needs trust must be irrevocable in order to qualify, since Medicaid ignores revocable trusts. The latter is simply an alter ego of the creator of the trust.

With the irrevocable special needs trust, you will not have access to the funds, so this requires that you have ample liquid assets outside of trust.

Spending down assets is often a viable method of qualifying for Medicaid, such as:

These steps assume there is a “community” spouse as well as one in nursing care. Spending down should occur after the beginning of nursing care, since the community spouse will receive a “resource allowance” based on remaining assets for her use.

The following assets are not counted when determining Medicaid eligibility:

When one spouse remains in the community, a minimum monthly needs allowance of $2,739 applies. There is also a “protected resource amount” equal to half of the couple’s countable resources, not to exceed the maximum federal limit of $109,560 (PRA for 2009). There is also a minimum PRA of $21,912. If the community spouse has monthly income below the $2,739, the PRA is increased.

In general, the income rules are inapplicable to the non-institutionalized (at-home) spouse; this spouse is entitled to keep all of his or her periodic income and is under no obligation to contribute to the institutionalized partner’s care. Therefore, if a pay check has the name of the wife, then the income is hers alone. The monthly needs allowance pertains to income of the institutionalized spouse. However, this rule doesn’t address the issue of whether or not the institutionalized spouse has any income at all with which to pay for his care. He would need to deplete his assets to pay the bill if no income source was available.

Governor Perry signed a bill into law in 2003 allowing recovery of funds spent on Medicaid nursing care from the estate of that person, including his home value above $100,000. If heirs earn more than three times the state poverty level, this $100,000 home exemption is taken away.

Divorce may be one alternative to assure asset protection for the community spouse, using a Qualified Domestic Relations Order to award a qualified plan to her. A disabled husband’s share of the estate could be contributed to a Supplemental Needs Trust that would provide additional support above Medicaid basics. Note that any balance in this trust must be given to Medicaid upon his death.

The disabled husband may qualify for SSI due to his impoverished financial condition, and for Medicaid as well. The Supplemental Needs Trust could provide additional special comforts and doesn’t count toward his resources. With qualification for Medicaid, the husband would also qualify for Medicare Part D low-income subsidy program (prescription drug program).

For certain individuals, qualifying for Medicaid and use of Medicaid Planning may be a viable strategy for guaranteeing asset protection. However, we suggest consulting an elder law attorney in order to assure that Medicaid planning is completed in an efficient, yet compliant manner.