An individual will only incur a transfer penalty if the individual transfers ( gives away ) assets without receiving fair consideration in return. Therefore, an effective and safe method to reduce excess resources to Medicaid eligibility levels involves “spending down” at least a portion of excess resources. Spending down involves the use one or more of the following three strategies: (1.) converting non-exempt resources into exempt resources, (2.) converting non-exempt resources into exempt income, or (3.) transferring non-exempt resources for valuable consideration that would not be considered a resource or income.
Under the first strategy, the individual might use excess cash resources to make home improvements and repairs, purchase a new vehicle, purchase new furniture and appliances for the family home, purchase an irrevocable burial plan or fund a Medicaid-exempt trust. Under the second strategy, the individual could use excess resources to purchase long-term care insurance or a Medicaid-exempt annuity. Under the third strategy, the individual might use excess resources to pay off a mortgage or other debts, pay for travel, hire a care manager, pay professional fees for Medicaid-planning, disability-planning or estate-planning assistance.
For some individuals, gifting may not be necessary to achieve Medicaid-eligibility levels after spending down; however, many individuals will still have excess resources after spending down and may need to proceed with some gifting as part of their plan to achieve eligibility.