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Issue Alert - Change in Asset Rules

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Jun 27, 2007

Program Area:


Issue Summary:

The Deficit Reduction Act of 2005 redefined how some assets are counted for purposes of Medicaid eligibility.

Persons Affected:

Medicaid applicants

For More Information:

Center for Civil Justice 320 S. Washington, 2nd Floor Saginaw, MI 48607 (989) 755-3120, (800)724-7441 Fax: (989) 755-3558 E-mail:

Michigan Poverty Law Program 611 Church Street, Suite 4A Ann Arbor, MI 48104-3000 (734) 998-6100 (734) 998-9125 Fax


In order to be eligible for government benefits, one must meet certain eligibility requirements. Some of these are financial, like income or assets, while others are non-financial, like citizenship and residency. The Department of Human Service (DHS) defines assets as cash, personal property and real property.

Not all assets count towards the asset limit. However, countable assets cannot exceed the applicable asset limit for the particular progream. Some assets are counted for one program, but not for another program. Some programs do not count assets at all. As a result of the Deficit Reduction Act of 2005 (DRA), there have been changes in how/if specific assets will be counted.

What's Happening?

As of April 1, 2007, certain requirements were changed regarding Medicaid eligibility. One of the government's concerns that it wished to address with the DRA was the perception that parents were transferring assets to their adult children in order to become eligible for long-term care. As a result, many of the changes were aimed at reducing or eliminating this problem.

Home Equity – an individual is ineligible for Long-term Care Services if the equity interest in his/her home is greater than $500,000. In the past, home equity was not a consideration.

Life Estate – The purchase of a life estate may have countable value in some circumstances. Old policy did not address the purchase or sale of a life estate. One Medicaid planning strategy involved the purchase of a life estate in the home of a child. Now, Medicaid law considers purchase of a life estate to be a penalized transfer if the applicant does not reside in the home for at least a year.

Promissory Notes - Promissory notes are a countable asset unless they meet certain requirements. Assets of an applicant or their spouse used to purchase an annuity or given in exchange for a Promissory Note will not be treated as uncompensated transfers if certain specific guidelines are followed. Generally, these guidelines provide that repayment must be made in equal monthly payments over a period not exceeding the applicant’s life expectancy and must provide for a reasonable rate of return and must not be assignable.

Pure Endowment Life Insurance Contract - A pure endowment life insurance contract is a contract which promises to pay to the holder a stated sum of money if he/she is living at the end of a specified period, nothing being paid in case of prior death. This type of life insurance is not considered life insurance by DHS and may be considered divestment.

What Should Advocates Do?

Discuss these changes with your clients who are applying for Medicaid. If a client is denied based on the new law, carefully evaluate the decision, as caseworkers will likely not be completely familiar with the new rules.

What Should Clients Do?

Consult an attorney before making changes in your estate that could effect Medicaid eligibility.

Finding Help

Most legal aid and legal services offices handle these types of cases, and they do not charge a fee.

You can locate various sources of legal and related services, including the free legal aid office that serves your county, at

You can also look in the yellow pages under "attorneys" or call the toll-free lawyer referral number, (800) 968-0738.