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She is moving into the family room so that she is on the same level as the bathroom. Assets are being spent down so that she will eventually qualify for the Aging Waiver. Can she use the money for flooring, paint, etc.?

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Good advice from Igloo572. As for the details of a personal services contract, it varies from state to state. I have a detailed section in my book that deals with this, and gives examples of what will and won't fly in most states.
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I'd check with a local attorney who knows your state Medicaid laws. There's some wonderful advice on this thread so read through it all. In the end, though, Medicaid will know so do it legally or you'll likely have a mess.
Good luck,
Carol
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Spend down is allowed for their care (like they pay for an in-home care giver service), or their needs or their property (any costs on their homestead property). The issue is going to likely be is that grannie is not the owner of the home. It is not her property as Grannie is living in someone else's home, so any changes paid by grannie affect the property owners as to value and will be viewed as gifting. Under medicaid compliance its ok for Grannie can buy a portable handicapped walkway for her use but grannie can't pay for a contractor to remove the old porch and construct a new handicapped walkway at your parents home; Grannie can buy a bedside commode (sometime these are covered by Medicare as an equipment benefit) but grannie can't pay for a new walk-in tub to be installed at your parents home. Now if grannie still owed her home & she was living there, she could spend her $ this way and all ok for Medicaud later on.

Realize that when later on Gran applies for Medicaid, the state could ask for 5 years of her bank statements. So those payments to either the vendor (like Smith Plumbing) or to your parents to pay for the renovation will show up and trigger a transfer penalty inquiry by Medicaid. If look-back shows other checks that are questionable - like Gran wrote a check for $ 2,500 to your Aunt - those also can get transfer penalty inquiry. Working out the transfer penalty will fall to whomever is Grans DPOA. Often penalties bring out family friction. All falls to the DPOA to deal with as they hold the fiduciary responsibility by being the DPOA.

It is good that you are thinking about medicaid regulations now & before an application is done. If gran has $ saved or investments or a whole life policy with cash value, all those will need to be spent down before Medicaid eligibility. I'd suggest that you or the DPOA pull together all Grans financial info and schedule an appt with an elder law atty. If grannie has a good bit of $$ perhaps a special needs trust could be set up for her that works even if she goes on Medicaid. Perhaps a personal services contract can be done between your parents & gran so gran pays rent and care fees to your parents which provide $/income to your folks and reduce gran assets and these are written so they are Medicaid review compliant. These aren't a DIY project. You need an experienced atty.

If you hear that medicaid isn't going to know, well that is a total myth.
When Gran applies for Medicaid, she will have to submit her "awards letters" - those are the documents that state what her SS, Retirement, pension, etc. will pay her for the incoming year. Medicaid uses these to determine what the copay or SOC (share of cost) will be required by grannie to pay to the NH each month; & medicaid can contact SSA or their retirement or IRS to verify past income.

BUT ALSO the awards letters provide info for Medicaid to determine what assets should likely be available.......so say Grannie #1 has awards letters of $ 1500 a month /18K a yr and lives with her daughter now for 5 years & sold her home 5 years ago for 100K & there is no personal care contract in place, so in theory, grannie #1 should have some of that 90K (18k X 5) and also whatever savings & house sale $$ still in her bank & available to spend down on her care. If grannie is down to zero, well just where did all that $$$ go? But say grannie #2 gets the same $ 1500 a month but Grannie #2 private paid for IL for 2years and AL for 2years & now a NH for a year, so it makes sense that grannie #2 is now totally impoverished and at the 2K in asset limit required for Medicaid.
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Be careful spending down with hopes of finding Medicaid funded nursing home. You will have a much better choice of facilities, when the time comes, if she is able to private for a period of two years before the Medicaid application.
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You may want to get advice from an eldercare attorney or estate planner. If it is seen as gifting that primarily improves your home, it may not be an allowable use of funds. On the other hand it may be simply normal living expenses of maintaining her part of a primary residence. Possibly, things that make it more accessible would be no issue, especially if you got a prescription for them; OTOH our adapting a vehicle we owned for my mom's wheelchair transport might have been a penalty situation if we had ever needed Medicaid (probably OK if it had been her vehicle and not ours...but it was worth it in any event.) To top that off, when we sold it actually went for LESS than if we had not adapted it! You can also ask about caregiver contracts, paying rent, etc. but my experience is that the devil is in the details.
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I suggest you pre-pay the funeral, pay for the Mercy Meal afterwards, and purchase the burial plot with the money, all legal expenditures.
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I would be careful, especially if there is any possibility that she will need a nursing home. Did you know that many Medicaid approved nursing homes require a private pay time period before they will accept you as a Medicaid resident. I didn't. My Mom did sooner rather than later require a nursing home and the Medicaid approved nursing home that we chose required 1 year of private pay at a cost of $100,000.
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Is there anything about what the personal care contract needs to entail?
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Deb - the contracts seem to be based on community standards for services &/or Fair Market Value for rent. So it varies by state and city.
Also sometimes the caregiver family will deliberately take a lesser amount to not themselves have additional tax issues. If you are a professional with a registered business, you can likely bill your parent the same as you would any other client for the same service & that may be a better way for taxes.
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no, no professional with a registered business here and the issue is services are already being provided re community standards; this contract is in addition, hence the concern - any thoughts?
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