Medicaid offers vital support for seniors planning long-term care. However, the income and asset limits are strict. Going over the limits may require you to “spend down” income or assets to maintain eligibility. These rules can be a concern for seniors with rental properties. This post explains Medicaid spend-down rules and strategies for shielding rental income.
It is important to note that these rules vary by state. This post focuses on Florida Medicaid.
Medicaid Spend-Down Rules and Rental Income
Understanding Spend-Down Rules for Income
Medicaid has strict income limits for seniors seeking assistance with healthcare expenses or long-term care. The current limit is $1,105 monthly for regular Medicaid and $2,829 monthly for nursing home Medicaid. These numbers also increase for couples.
Spending down rules apply even if your income slightly exceeds these limits. For example, if you have $3,000 in monthly income and need Medicaid for nursing home care, you’ll have to spend down the additional $171 that exceeds Medicaid’s income limit. Additionally, the spending must be on qualified healthcare expenses.
Rental income can complicate matters by putting you over the income limit. You’ll have to spend down much of the income. What can you do to protect that money?
The Rental Property as an Asset
You’ll need to deal with the rental property as an asset. If the property puts you over the asset limit, shielding the income won’t matter. Fortunately, some assets are exempt from calculations. That may even include a rental property.
Florida’s current asset limit for regular Medicaid is $5,000. For nursing home Medicaid, it is $2,000. These numbers increase for couples.
Then, determine if your income-producing property is exempt from asset limits. In Florida, a rental property can be exempt if the income is vital to personal support. The property must generate income consistent with the fair market value, so you can’t charge an exceedingly low rental rate to protect the asset while staying under income limits.
Also, remember that it can’t be a property for personal use. You can rent it to almost anyone, but it must be an income-generating asset. Owners also have the option to rent long-term or short-term, but the annual income it generates must align with market values.
Sheltering Rental Income
There are a few strategies to protect rental income from spend-down rules. A Qualified Income Trust (QIT) allows seniors to deposit excess income in a trust to maintain eligibility. However, you can only spend the funds on eligible medical expenses. QITs have strict rules. Improper management can lead to eligibility issues.
Another option is an irrevocable trust. Transferring rental property into a trust protects the asset from Medicaid. It could also protect the income and preserve it for your heirs. However, creating an irrevocable trust involves surrendering control over the asset. It is also a permanent decision with strict guidelines.
Medicaid eligibility and income protection are complicated matters. Seniors should consult an elder law attorney for assistance with setting up trusts and protecting assets.
Do you need help navigating Medicaid eligibility? Click here to contact the Scott Law Offices. Our elder law experts can help you understand your options and develop a strategy.
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