Dear Senior Living Adviser,

If I have a reverse mortgage, do I need to be concerned with the Medicaid “look-back” period if my wife or I needs to go into a long-term care facility?

— Bruce Baffled

Man seated at kitchen table thinking © cunaplus/Shutterstock.com

Dear Bruce,

It depends on how long you’ve been in the mortgage, and how you chose to receive the proceeds from your reverse mortgage.

For the uninitiated, Medicaid is a form of social welfare designed to help people in need and is administered by the states. It is designed to pay for long-term care once a person’s funds and assets are exhausted.

When an individual applies for Medicaid coverage for long-term care, the state conducts a review, or “look-back,” to determine whether the individual (or his or her spouse) has transferred assets (for example, a cash gift to children or transfer of homeownership) to another person or party for less than fair market value.

The “look-back period” is 60 months prior to the date that the individual applied for Medicaid. The state doesn’t want people to give away their assets only to apply for Medicaid, claiming they can’t afford to pay for care.

With a reverse mortgage, how you structure the payment of proceeds may influence your Medicaid payout in a look-back period.

Seniors can get a lump sum at closing, an annuity payment stream or a line of credit, or some combination of these payment options.

If you took the money as a lump sum and it’s sitting in your accounts, the risk isn’t necessarily a look-back risk. It could be a spend-down risk before you can qualify for Medicaid, meaning that Medicaid expects you to use available funds on your long-term care before you can qualify for Medicaid assistance. Some assets, like the equity in your primary residence up to a set dollar amount, are exempt from the spend-down requirement.

As for taking the proceeds as a line of credit or a monthly tenure payment (annuity), I asked Don Graves, chief conversation starter at the Reverse Mortgage Advisors Group about them. (Love the title.)

He said, “If the proceeds (from the reverse mortgage) are in a line of credit and being accessed and used within the month they are received, there has been no conflict. The same goes if a couple establishes a monthly tenure payment. The payment should not be in excess of their needs for that given month. This will avoid a build-up in the savings account that then could be looked at with (Medicaid) eligibility concerns.”

Both Don Graves and I want to point out that the best way to manage your look-back risk and spend-down risk, especially since you’re already in a reverse mortgage, is to work with an elder care attorney to review your finances.

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