Before September 30th, 1989, elderly couples often encountered financial problems when one (known as an institutionalized spouse) started receiving Medicaid benefits in a nursing home but the other continued living at home (known as a non-institutionalized spouse or community spouse). In order for the institutionalized spouse to qualify for Medicaid, the community spouse would often have to significantly reduce their own assets to the point of self-impoverishment. Therefore, “Medicaid divorces”, which would allow the community spouse to retain their assets, were an unfortunate but common occurrence. However, the federal government has since provided a way for the community spouse to retain enough resources to provide for his or her care without going through a divorce.
As long as certain criteria are met, the spousal impoverishment rule means that the community spouse can protect at least $25,640 and at most $128,640 for their own use, which is called the spousal protected resource amount, or SPRA. In order for the spousal impoverishment rule to apply, either your mother or her spouse must: (1) be in a medical institution or nursing facility, and (2) reside there for at least 30 days, while the other spouse does not reside in a medical institution. Sometimes, it can be tricky to determine whether or not the community spouse actually resides in a medical institution. For example, if the community spouse resides in an assisted living facility, Medicaid may consider him or her to be “in the community” meaning he or she is not institutionalized.
Calculating the Spousal Protected Resource Amount (SPRA)
The spousal protected resource amount (SPRA) is calculated by taking the greater of (1) one-half of your mother and her spouse’s combined countable resources, not to exceed $128,640 (as of 2020) or (2) $25,728 (as of 2020).
This calculation takes place on the “snapshot date”. To determine this, find the date your mother’s spouse became institutionalized, and add thirty-one days. The snapshot date is on the next first day of the month. For example, Jim is institutionalized on August 5th, 2018. He continues to remain in a facility, and on September 5th, 2018, he has been institutionalized for 31 days. So, the snapshot occurs and assets will be measured on October 1st, 2018 at 12:01 a.m.
The Expanded SPRA: Definition and Calculation
Although the SPRA can allow the community spouse to retain up to $128,640, this may not be enough to prevent impoverishment. As you may have seen first-hand from friends or family, even this amount of money can be spent quickly. If your mother and her spouse’s combined income is less than the “minimum monthly maintenance needs allowance” (MMMNA) of $3,216, then they can retain as much money as they need to generate enough monthly interest to make up the difference between the MMMNA and their current countable income that is not generated by countable resources.
The following is an example calculation for the expanded SPRA:
Add up your mother and her spouse’s monthly income (income from a countable resource is not included).
$750 + $1,150 = $1,900
Subtract $60 for the personal needs allowance.
$1,900 - $60 = $1,840
Subtract your mother’s income from the MMMNA ($3,216 in 2020).
$3,216 - $1840 = $1,376
This is the “shortfall” amount.
Multiply the shortfall amount by 12 to get the “annual shortfall amount.”
$1,376 * 12 = $16,512
Divide your mother’s annual shortfall amount by the one-year certificate of deposit rate.
$16,512/.01 = $1,651,200
The expanded SPRA cannot exceed your mother and her spouse’s combined countable resources. In other words, in the above example, if your mother and her spouse only have assets of $200,000, then $200,000 is the max amount that can be protected. However, if they have $2,000,000, then they could protect up to $1,651,200.
SPRA Community Spouse Transfer Strategy
If the SPRA applies to your mother, she may be able to use this strategy:
- Have your mother and her spouse enter into a marital property agreement that transfers all the assets to your mother (as long as your mother is not the institutionalized spouse). Your mother’s spouse can only transfer real estate through a deed. It is important that the deed contains language signifying that the property is currently community property, but it is now becoming separate property.
- Your mother can choose to whom she wants to leave her property through the execution of a will, trust, or other testamentary documents. Most individuals wish to leave their property to their spouses. If this is your mother’s desire, she can execute a will that leaves her property to a trust for the benefit of her spouse. The key provision here is that the trustee cannot be her spouse and cannot have any discretion over the assets of the trust. As long as the trust is created correctly, then the assets in the trust are not considered a resource of her spouse and he will be able to keep Medicaid benefits. Note that the alternate beneficiaries may be the children.
Through this strategy, we have been able to protect resources through the SPRA or the expanded SPRA. Federal law states that “No resources of the community spouse shall be deemed available to the institutionalized spouse.” If everything is done correctly, your mother can transfer the assets without her spouse is subject to the gifting penalty.
 42 U.S.C.A. section 1396r-5(e)(2)(B);