As a CERTIFIED FINANCIAL PLANNER™ I instruct people to become debt free as soon as possible. That is a good rule of thumb, but as a Kentucky Elder Law Attorney, the use of debt can actually help a family protect more of their estate against the spend down of Kentucky Medicaid.
In Medicaid planning in Kentucky, in some instances, clients could be benefitted by taking out a Home Equity line of credit on a protected or exempt resource, like their home. When you have a community spouse, Kentucky Medicaid will count all the available resources and divide them in half.
Let’s say that you have a family with $75,000 in countable resources and an exempt home valued at $100,000. The family could mortgage the house at 80% LTV for “cash” which would now give the family $155,000 in cash as countable resources. The resource assessment (PA-22) would require that the family “spend down” $77,500 to qualify the institutionalized spouse for Medicaid. After the resource assessment, the family pays back the mortgage and the community spouse’s $75,000 is protected as a lump sum. Otherwise, without this maneuver, the family would have had to divide the $75,000 in half and spend it down before qualifying, leaving the community spouse with only $37,500.
Make sure you work with a capable Medicaid planner or Kentucky Elder Law Attorney. Enjoy the show.