Answer: Medicaid is a Federal/State program where the Federal government puts up most of the money, and the States administer how the money is spent. The States must follow Federal law and regulations, but the law and regulations allow for some leeway in how different rules are interpreted and applied in given situations. Thus, Medicaid is administered differently from State to State, and it is important to consult a Medicaid expert in your State any time you need accurate information.
That being said, the proceeds from a reverse mortgage may be “countable” as long as they remain in cash and as long as the amount of cash exceeds the amount that an individual or couple may possess without undermining Medicaid eligibility. The law allows States to set that amount within a range prescribed by Congress. Some States opt for the maximum amount, some for the minimum, and some opt for a level in between the allowable extremes.
Where an individual or couple owns “excess” cash, often they can spend the cash on exempt assets in order to bring themselves within the prescribed limit. Thus, for example, if a State allows a couple to have $111,560 in cash but they have $150,000 in reverse mortgage proceeds sitting in the bank, they can spend enough of the cash on exempt assets to bring themselves within the $111,560 limit.
Exempt assets may include such things as their home, a car, normal household furniture and appliances, a funeral plan, a burial plot, and life insurance with a cash value of no more than $1,500. Thus, if some of the reverse mortgage proceeds are spent on needed improvements to the home (to make it more habitable for the spouse that is not entering a nursing home), on a car (no Ferraris, please), or on typical household furnishings, they can essentially turn nonexempt cash into exempt property. Note that various States have different caps on the amount of home equity will be considered exempt, and a reverse mortgage can be used to convert excess equity into other kinds of exempt assets in order to assure that the home will be exempt.
As you can see, the rules can be complex and they vary from State to State, so it would be to your advantage to consult a Medicaid expert in your State. Have a look at http://www.eldercarematters.com/statechapters.htm for a link to experts in your locale.
Scott A. Makuakane, Esq., CFP
Est8Planning Counsel LLLC
Honolulu, Hawaii 96813
Member of the national ElderCare Matters Alliance, Hawaii chapter
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