Medicaid asset spend-down: would repaying a personal debt to a family member be accepted as valid?

It could be done but Medicaid has very strict guidelines on documenting this 'loan'. And the money that was loaned cannot be used for shelter, food, or healthcare.

tvoqbo: You need to pose your query to an elder law attorney.

My mom went thru something similar - ended up getting a lump sum payment and we spent it on anything "allowable" ie home repairs, prepay funeral expenses etc - i documented it all in case medicaid ever comes knocking on the door but they never even asked about the lump sum she received....it seems that past debt is allowable but not sure if yours is an "official" loan etc - probably best to speak to attorney....not sure if you have to even tell medicaid if you spend it appropriately and document...key is to not keep it .....

Allowable Medicaid Spend Down Items (Effective Jan. 2022)Accrued DebtOne can pay off accrued debt, such as personal and vehicle loans, mortgages and credit card balances.Medical DevicesOne can purchase medical devices that are not covered by insurance, like dentures, eyeglasses, and hearing aids.Home ModificationsOne can make home reparations and modifications to improve access and safety, as well as build on to their existing home, such as adding a first floor bedroom or bathroom.Vehicle RepairsVehicle repairs, such as replacing the battery, getting an engine tune-up, or replacing old tires are also a way to spend down assets, as is selling an existing car at fair market value and purchasing a new one.Life Care AgreementsOne can create a formal life care agreement, often called a personal care agreement. This type of agreement is generally between an elderly care recipient and a relative or close family friend. It allows the care recipient to spend down their excess assets while receiving needed care. It is vital this type of contract be drafted properly and that pay is reasonable for the area in which one lives. If it isn’t, one could be in violation of Medicaid’s look-back period.AnnuitiesOne can purchase an annuity, which in simple terms, is a lump sum of cash converted into a monthly income stream for the Medicaid applicant or their spouse. The payments can be for a set period shorter than one’s life expectancy or equal to the beneficiary’s life expectancy.Irrevocable Funeral TrustsOne can purchase an irrevocable funeral trust, which can only be used for funeral and burial expenses. In general, up to $15,000 per spouse can be placed in a funeral trust. However, this amount varies by state.

Before you do anything, speak to an attorney that has worked with Medicaid before and its rules and exceptions to rules etc. I would not go ahead with it unless you talk to someone well versed in the subject. Don't trust your own knowledge because there can be so many if ands and buts to the rules. Nice of you to want to pay back your family member, but in this case you have to be the priority. You could get the info if you just go to Medicare and ask what are acceptable spend downs without telling them what you are specifically about, just that you want to be sure not to affect your current Medicaid. But, anything you get from them or the attorney must be in writing and signed. I would think that maybe the attorney could be paid from the spend down, but I really don't know and would ask before you do anything.

In the '70's I was a Minnesota Financial worker, and I know many things have changed (we NEVER put liens on patients' houses!), but I would suggest you first discuss this situation with your financial worker. S/he can check the manual and/or discuss with her supervisor. Depending upon the nature of the debt, it may/may not be allowed. This is a fast and free way to start checking into this, so that is what I'd do. It's good you are thinking ahead.



ivosr. Depending upon

I agree with AlvaDeer, it is imperative that you speak with an attorney -- elder care lawyer -- experienced with Medicaid in YOUR STATE! The legal terms of the settlement as well as what if any legal documentation you have for said loan (your debt to a family member) really should be reviewed by an attorney. Questions like was the outstanding debt to your family member (the loan) disclosed at the time you applied for Medicaid? If not, why not? Is your family member willing "under penalty of perjury" to attest to and sign any required legal affidavits and bank statement to affirm the funds were received as a loan from you? And further, can/will your family member be able to produce receipts of what the loaned funds were spend on at the time they were loaned?

Also, just your receipt of the settlement payout could trigger your responsibility (duty to inform) to immediately inform your state Medicaid office within X days of this payment or you may be penalized in some way. That is, I would not wait on this much less -- as AlvaDeer stated -- rely on advice from this forum. You need real legal advice here from an attorney or guidance from your state Medicaid officials.

I would review the medicaid paperwork and speak with a medicaid social worker. I established a special needs trust for my family member and placed the money there. In my case, the attorney advised that the money can only be used to directly benefit the beneficiary of the trust (which in your case would be you), and that at death, the money and whatever else is in the trust would go to the person or persons designated in the irrevocable special needs trust. However, I strongly suggest you speak with the medicaid Caseworker and see what their thoughts are regarding the loan payment.

You really need to ask your social worker.

Have you prepaid your funeral? Good way to spend down.

I loaned my mother a significant amount of money with only a verbal agreement she would pay me back. (What can I say....I love my mother.) I tried for years to get her to put this in writing without success. Of course, I should have had the loan in writing first. When she became a NH resident, I had no choice but to file a civil suit against my mother to put a lien on her property for the loan amount. I needed the lien before Medicaid could put one on the property. My brother w POA had told me i’d have to fight Medicaid for my money. I decided he’ll no! Mom is of sound mind & contacted an Atty. Fortunately, I had documentation of every penny I loaned her. In the end, a settlement was reached. I did agree that the loan would not be paid until mom passes. Get your documentation in order. A friend told me 2 things about loaning people money. He said, “Family will f*#k you first” & “If the Ioan is more than $5, it’s business.” I’ll never forget that!

This is a question for an attorney or for medicaid itself. Don't trust the opinion of a Forum, no matter the experiences of its members when there is any question of any legal, financial, medical questions in which you simply cannot afford to make a mistake.
I agree with GardenArtist, that, even if this IS allowed, you would need to have good valid dated documentation.
There are often ways that surprise payments and inheritances can be protected by directing them into something, but far be it from me of being aware of any of this; I myself with check with an attorney in the event this is any substantial amount. Well worth the 350.00 hour fee for an hour of good advice.

Was the debt documented? By a Promissory Note, or other agreement? I would think you'd need written validation of the debt for it to be considered as a valid paydown.