How does a person qualify for Medicaid benefits? The answer to this question varies depending on the person’s individual circumstances; however, a person’s marital status has a tremendous effect on a person’s eligibility for Medicaid benefits.  It is often far easier to qualify a married individual for Medicaid benefits than it is a single person. Furthermore, while anyone could qualify for Medicaid benefits, not everyone will want to qualify.

Let’s assume that the client resides in a nursing home.  If the client is single, he can only retain $2,000 in countable resources.  In this case, countable resources include all assets the person owns with limited exceptions, such as personal goods and household effects, a car, and a prepaid funeral.  If the client owns a home and is not expected to return to the home—in other words, she is expected to live in the nursing home, not at home—then the home must be listed for sale.

With a married couple, the situation is a bit more complicated.  The client can retain the same countable resources—personal goods and household effects, a car, a prepaid funeral—but the spouse who is residing at home also can retain certain assets.  The spouse living at home–called the community spouse because he is residing in the community, and not at home–can retain significant assets without affecting the institutionalized spouse’s eligibility for Medicaid.

For one, the community spouse can retain the home, irrespective of the home’s value. The community spouse can also retain up to $126,420 in countable assets (bank accounts, stocks, bonds, IRAs, etc.).  The ability to retain these assets is a major boon for the institutionalized spouse’s eligibility for Medicaid benefits.  For instance, if Mr. and Mrs. Smith own a home worth $300,000 and bank accounts worth $260,000, Mr. Smith (the community spouse) can retain the home and $126,420.  In this scenario, most of the Smith’s assets are preserved for Mr. Smith’s benefit.

In addition, Mr. Smith can retain all of his income. So, if we convert the excess countable assets, about $130,000 in the above example, into a stream of income that belongs to Mr. Smith alone, Mr. Smith would end up retaining all of the couple’s assets.  The Smiths can convert the excess countable resources into a steam of income by purchasing a Medicaid-complaint annuity.

I always tell clients that the typical Medicaid planning client has between $50,000 and $700,000 in total assets, including the home. For instance, Medicaid planning is not for people who are worth more than $2,000,000.  While it is possible to achieve Medicaid eligibility for people who have substantial assets, it is impractical for people with substantial assets to attempt to qualify for Medicaid.

Most people with substantial assets have a significant portion of those assets invested in tax-deferred accounts, such as IRAs. If Mrs. Smith has $750,000 in an IRA, then she would have to remove that money from her IRA before she could qualify for Medicaid benefits.  Removing $750,000 from an IRA would result in a significant income tax liability.  The Smiths would have to take this significant tax liability into consideration before seeking to qualify Mrs. Smith for Medicaid benefits.

Furthermore, people with $2,000,000 in assets typically aren’t willing to give away their assets in order to qualify for Medicaid benefits. For instance, the Smiths probably would not want to transfer $1,500,000 of their assets to their children in order to qualify Mrs. Smith for Medicaid.

While, theoretically, anyone can qualify for Medicaid benefits, the reality is there is a financial range in which the average Medicaid planning client is found. Those with assets well in excess of that range would likely find Medicaid planning too financially painful.