How to buy an irrevocable burial reserve for Medicaid spend-down

Many, perhaps most, Medicaid applicants buy an irrevocable burial reserve when spending down to qualify for long-term care Medicaid benefits.

As with most Medicaid qualification strategies, there is a right way and a wrong way to do it.

This post will address some of the most common errors people make using this strategy in Pennsylvania, where I practice, and will explain the correct way to buy a reserve.


An irrevocable burial reserve is an exempt resource, meaning it won’t be counted as a resource that needs to be spent down. Buying exempt resources is an effective way to qualify for Medicaid benefits.

I usually recommend purchasing a reserve in the maximum amount allowable under Pennsylvania Medicaid provisions.

Under Pennsylvania provisions, a Medicaid applicant’s reserve will be exempt if its value does not exceed an allowable limit. That limit is 125% of the average burial cost in the county where the applicant resides, as tracked and calculated by the Commonwealth.

Current limits as of this writing for the Pittsburgh region are (by county):

  • Allegheny: $16,375
  • Westmoreland: $12,692.50
  • Washington: $15,000
  • Butler: $14,000
  • Beaver: $15,625
  • Fayette: $11,113.75
  • Indiana: $11,500
  • Armstrong: $11,000
  • Lawrence: $10,950

So a Medicaid applicant at a Pittsburgh (Allegheny County) facility could purchase an exempt reserve up to $16,375 in value, while an applicant in New Castle (Lawrence County) could place only $10,950 into a reserve that would remain exempt.

Beneficiary designation

Make sure to make a beneficiary designation for any unused funds to one or more persons, such as family members, instead of to the estate of the Medicaid applicant. The reason is that the Department of Human Services tracks its expenditures for every Medicaid recipient and makes a claim to collect reimbursement after the recipient dies.

Under Pennsylvania regulations, “[a]ssets placed in trust prior to the death of the [Medicaid recipient], including irrevocable burial reserves, are not subject to Department’s claim if the assets are not payable to the [recipient’s] estate.” 55 Pa. Code § 258.3(d). By making the estate the beneficiary, you make any excess funds subject to the Department’s claim, but by making it payable to a person, you avoid that loss.


Advance planning usually yields the best results in estate or Medicaid planning. But the buying of a burial reserve is often an exception to the rule.

Especially in the case of a married couple, buying reserves too soon can actually cost the applicant’s spouse because it reduces funds used to determine the community spouse resource allowance. The best time for a married couple to buy reserves is after date of admission to a nursing facility.

In the case of a single or widowed person, waiting until after date of admission allows the applicant to determine exactly how much should go to a burial reserve as opposed to being used for some other purpose, such as making other exempt purchases or making exempt transfers of funds.

The Department of Human Services increases the allowable purchase amounts about once a year, so by waiting you may also increase the amount you can place in the reserve.

Finally, the Department will give retroactive effect of the purchase of an irrevocable burial reserve up to 30 days. So even if you wait until after date of admission to buy the reserve, acting within the 30-day window can still mean qualification for benefits at the earliest possible date.

Putting it all together

By determining the proper amount of the reserve, knowing how to set up the contract the right way, and timing it smartly, you can get the maximum benefit from buying irrevocable burial reserves.

This purchase is often a key part of an effective Medicaid spend-down strategy.

When you enter a nursing home, protect your spouse!

When someone needs nursing home care, a spouse often remains at home. What will become of the spouse?

If this happens in your family, I urge you to take action immediately to make the spouse more secure. I feel passionately about this issue because after many years practicing elder law, I have seen spouses taken care of well, and others impoverished. I would much rather see security (financial and otherwise) for the spouse at home.

With that in mind, we recently updated our website page titled 7 Costliest Mistakes to Avoid When a Spouse Enters a Nursing Home. Click on the title to learn about simple steps you can take to maximize security for the spouse at home.

You can also read our blog post: Why use an elder law attorney to help you qualify for Medicaid? At the risk of sounding self-interested, I submit that hiring professional help is your best move. Click on the post title to learn why it is also cost-effective and better than alternatives you may be considering.

Resources exist to help you make your spouse more secure. Take advantage of them and he or she will thank you.

Ruling highlights importance of using elder law attorney in Medicaid eligibility

asset-protectA federal appeals court ruled yesterday that “annuities with certain characteristics, including nonassignability clauses, are not assets to be counted as resources” for purposes of Medicaid eligibility.

The ruling affirms the role of planning in achieving the most favorable result for the Medicaid applicant. “Financial planning is inherent in the Medicaid scheme,” the court wrote. The court also noted that using “an elder law attorney to develop a Medicaid eligibility plan … helps ensure that the annuities purchased are Medicaid-compliant, and thus helps reduce the risk of litigation.”

The ruling settled a question about whether some short-term annuities purchased by Medicaid applicants comply with federal law. The court ruled that as long as the annuities comply with Medicaid’s “safe harbor” provisions, they will not preclude eligibility for benefits.

Annuities may violate Medicaid law’s requirement of being “actuarially sound” if they exceed the annuitant’s reasonable life expectancy, but not if they are shorter than life expectancy, according to the court.

The ruling came from the U.S. Court of Appeals for the Third Circuit, which includes Pennsylvania in its jurisdiction.

You can read the full opinion here.

Why use an elder law attorney to help you qualify for Medicaid?

asset-protect2Imagine that your husband recently suffered a stroke. After a stay in the hospital, he now resides in a nursing home. His doctor tells you your husband will not likely improve and will need to stay at the home indefinitely.

You worry how you will pay for care at $10,000 a month without impoverishing yourself.

A friend suggests you speak with an elder law attorney to come up with a plan. But the friendly, helpful woman in the nursing home’s business office dismisses that suggestion with a wave of her hand. “You don’t need to do that, we’ll help you prepare a Medicaid application – and we’ll do it for free!”

She seems so knowledgeable, telling you with certainty that the rules allow you to keep your house but require you to spend down half your other assets. “Well,” you think to yourself, “money is tight right now. Why pay someone to help me when the rules are clear and the nursing home will help me file an application for free?”

The answer is that you could easily wind up spending tens of thousands or even hundreds of thousands of dollars unnecessarily without a good plan to qualify for benefits.

Hopefully that last sentence got your attention. I’ve seen it happen countless times. A client finally comes to me for help a year or two too late, only to discover that they have been writing large checks for nursing care every month, when they could qualified for benefits long ago. Too late now – the money’s gone.

I don’t want you to end up like that. Read on to find out why it’s important to get good, objective advice, and how you can get that advice easily.

1. Qualifying for Medicaid is not simply a matter of filing an application.

Let me repeat that: Qualifying for Medicaid is not simply a matter of filing an application.

A nursing home resident becomes eligible to receive Medicaid benefits only after meeting certain financial requirements. You will not receive a dime in benefits until you meet those requirements.

The application merely allows benefits to begin once you have already met the requirements. A few people (those with very few assets) qualify immediately. Others have so much in assets that they will never qualify.

But most middle class clients we have seen must first spend down some assets before becoming qualified for benefits. Filing an application makes sense only when you have made the requisite spend-down.

Ideally, you should have a plan for how you will become qualified.

2. Medicaid rules allow numerous opportunities for savings and asset protection.

Medicaid law allows applicants to claim certain assets as “exempt,” meaning they will not count for spend-down purposes. The law also permits some “exempt transfers” of assets (for example, the transfer of a house to a caregiver child) that will help an applicant become eligible without triggering the usual penalty for giving away assets.

For married couples, the rules become more complex, allowing the non-applicant spouse (the “community spouse”) to keep some of the couple’s assets as a “community spouse resource allowance,” permitting the community spouse to receive a certain level of income as a monthly maintenance needs allowance, and allowing the community spouse to keep additional assets if income is needed for the community spouse to receive an adequate needs allowance.

In addition, case law in Pennsylvania authorizes the purchase of an annuity to give the community spouse additional income.

Let me stop here for a moment and return to the example I started with. Is the nursing home business manager (who offered to help you fill out an application) going to sit down with you and calculate your community spouse resource allowance and your monthly maintenance needs allowance to determine if you are entitled to keep additional assets when qualifying for benefits, or to discuss whether the purchase of an annuity would help you qualify sooner and provide income you will need in the future?

My guess is almost certainly not – she lacks the knowledge, training, and time to make those calculations and assessments.

3. Lawyers are trained to serve your best interests.

An experienced elder law attorney (especially one with a CELA designation) has the training to look for all the various ways you can get the best financial result.

And unlike someone who works for a nursing home, your lawyer has no conflict of interest. Keep in mind that the nursing home has an interest in making sure you qualify for benefits when you’ve spent down, but not necessarily in having you qualify any sooner. After all, the nursing home makes more profit when you’re spending down than when you’ve qualified for benefits.

A lawyer, on the other hand, is trained (and required by the rules of professional conduct) to act only in your best interest.

In the case of Medicaid planning, that means finding the spend-down scenario that will best serve your interests in saving money, protecting assets, and providing for the security of the community spouse.

A good elder law attorney will have spent significant time learning the nuances of Medicaid law and accumulating an assortment of techniques to maximize asset protection for clients. This knowledge and expertise can prove invaluable in crafting your plan.

4. We make it easy to find out if hiring an attorney is cost-effective.

At Sykes Elder Law, we make it simple to determine if using an attorney for Medicaid planning makes sense in your case.

When you first call, you will speak to someone who is trained to ask you the right questions to find out if it makes sense to come in for an appointment. We make appointments only for those clients who appear to be good candidates for benefitting from our expertise. If we believe you would not benefit, we tell you; if we believe you would benefit, we recommend an appointment with a certified elder law attorney.

It costs just $385 (at the time of this writing) to have an attorney meet with you, review your circumstances in detail, and make recommendations on how to proceed. Some clients receive great benefit (mentally and financially) from just that one meeting. In many cases, though, clients decide to hire us to help them design and implement a Medicaid qualification and asset protection plan because they have discovered how much more they will save and protect by having professional help.

Worth a phone call?

Let’s go back to the question from earlier in this post: Is it worth it to pay someone to help me, when I could prepare an application myself or get free help from someone at the nursing home?

It may or may not be cost-effective to hire an elder law attorney for Medicaid planning, depending on your situation. But it takes one phone call to start finding out.asset-protect2

How to save $8,000 qualifying for Medicaid

asset-protectAccording to USA Today, about two-thirds of nursing home residents spend down to qualify for Medicaid. Many of them could spend down less, and save more in assets, if they would do just one thing differently.

To understand my point, you need some background.

A nursing home resident in Pennsylvania qualifies for Medicaid after meeting certain requirements, such as citizenship, residency, level of care needed, and (most importantly) financial need.

To meet the financial need requirement, an applicant in Pennsylvania can own certain exempt assets, but can have no more than $8,000 (sometimes as little as $2,400) in non-exempt assets. If the applicant is married, the spouse at home can own much more in non-exempt assets. To understand how, read our post about the community spouse resource allowance.

Because of these rules, many people end up spending down to the point where Medicaid pays for the applicant’s nursing home stay (in return for the applicant’s income, minus certain deductions). But they don’t know how to do that in the most effective way, so they spend down more than they need to.

I’ll make up a simple example. Suppose George and Harriet own a house, car, and $200,000 in checking and savings accounts. George receives nursing care and meets all the Medicaid requirements except for (at the moment) financial need. He receives $2,000 in income each month, but pays $10,000 a month ($329 per day) for nursing care.

Medicaid rules allow Harriet to keep $100,000 and we’ll assume George is allowed to keep $8,000 in non-exempt assets. (To keep the example simple, I won’t go into how I arrived at these calculations, but you can learn more in our blog archives.) Bottom line for now: the couple must spend down $92,000 to qualify for Medicaid.

Let’s also suppose that, unlike many people, they know of some allowable ways to spend down. We’ll say that they plan to spend down their excess $92,000 as follows: $31,000 for irrevocable burial reserves, $18,000 to replace Harriet’s 1992 Chevy, and $43,000 to a special needs trust for the couple’s disabled daughter.

Now I can get to the point of this blog post. George will qualify for benefits, and stop spending $329 a day, once the couple’s bank records show their checking and savings accounts total no more than $108,000.

But here is where they go wrong and lose money. They write checks to pay for the spend-down items (including $18,000 to a used car dealership to buy Harriet a newer model Ford) but it takes 30 days for the last check (to Honest Joe’s Auto Emporium) to get deposited and clear the account.

Once simple change would have saved them $8,000. They should have gone to the bank and asked for three cashier’s checks to pay for the spend-down items. The bank deducts funds for cashier’s checks from a customer’s account immediately. Bank statements would show George and Harriet’s assets at or below $108,000 on the day of the transaction, instead of 30 days later.

As it is, George must pay another $10,000 for 30 more days of care. He saves the $2,000 he would have had to pay if he qualified for Medicaid, but he has still incurred $8,000 in costs ($10,000 for care minus $2,000 of income) unnecessarily that will have to come from the $108,000 George and Harriet were allowed to keep.

This example shows why working with a certified elder law attorney can be so cost-effective. Even one small change can mean thousands in savings.

To learn more, call us at (412) 531-7123 to discuss the details of your situation.