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A Reverse Mortgage May Be Used By Those on Medicaid, Medi-Cal or Supplemental Security Income (SSI)

Many people on Medicaid, Medi-Cal or SSI have done a reverse mortgage legally and properly.  Conversely, many people with a reverse mortgage have qualified for Medicaid, Medi-Cal or SSI.

When applying for a reverse mortgage if you are on Medicaid, Medi-Cal or SSI, there are no special requirements.  It is after you have the reverse mortgage that you want to make sure you follow the Medicaid, Medi-Cal or SSI guidelines in the way you take your funds.

Technical explanation.  No matter how you take your money in a reverse mortgage, it is considered a loan.  If you are looking at a financial statement, it is a liability, not an asset.  The home is the asset.  Many times we refer to the monthly payments incorrectly as monthly income.  Neither the IRS nor Medicaid nor any other agency count the funds from a reverse mortgage as taxable income or qualifying income.  Think of taking a cash advance from a credit card.  It is money you owe to the credit card company.  I've not seen an agency consider the money from a cash advance as income.  The funds from a reverse mortgage are similar. 

The Medicaid, Medi-Cal or SSI guideline you need to be most cautious of is the cash on hand guideline.  Once example is the requirement you have no more than $2000 in your bank accounts.  If you are taking $1000/mo of payments from a reverse mortgage and spending only $500/mo, it is obvious that you will exceed the $2000 guideline within a few months.  So, when taking monthly payments, take no more than you know you will be spending every month.  If you leave money in the Line of Credit option, you can always get to it if you run short one month.

Another caution is if you are taking out some funds to buy an expensive item, such as a car.  Don't take your funds out of the line of credit or as a lump sum when you fund the reverse mortgage until you are ready to pay the money to the dealer.  Go shopping for your car, make arrangements for a single payment 10 days after the agreement is signed.  Then request the funds from the Line of Credit.  Once the funds arrive, I would recommend getting a Cashier's Check from your bank made out to the dealer.  In this way you know the funds have quickly gone into and then out of your account. 

As long as funds go into and out of your bank account in the same month/statement period, you should be fine.  Be aware that not all bank accounts cycle at the end of the month.  Many banks spread their cycle dates around so they can spread the workload of creating statements around.  Know when your cycle date is.  To be safest, have the money go in and out in the same month and the same statement period.

If you have a reverse mortgage and are applying for Medicaid, Medi-Cal or SSI, use caution with how you fill out the forms.  When asked for your income, remember your monthly payments for LOC draws from a reverse mortgage are not income.  You are advancing yourself a loan.  When filling out a financial statement, remember that a reverse mortgage is a liability, not an asset.  Correctly show your home as an asset.   If you incorrectly fill out this paperwork, it is usually a clerk who does not understand the fine points of a reverse mortgage that will be responsible for qualifying you or disqualifying you.  If you show your $1000/mo from a reverse mortgage as income, it is likely you will be automatically disqualified.  If you are disqualified for Medicaid, Medi-Cal or Supplemental Security Income because of a reverse mortgage, ask to speak to a manager.  They may be more aware of these guidelines.  If necessary, refer to the notes below.

If you are audited by Medicaid, Medi-Cal or SSI, please review the paragraph above.  The same cautions on filling out the paperwork apply.

Technical Note: This is from a newsletter for the California Department of Health Services.

Q:  How does Medi-Cal treat the monthly payment generated by a reverse Mortgage?

A:  At first glance, it would seem logical that the amount received would be included in the monthly Share of Cost computation since the reverse mortgage is generating an income stream.  However that assumption is not correct. 

For the purposes of Medi-Cal eligibility, the payment received from a reverse mortgage is not considered income, but instead is considered property in the month received.

A reverse mortgage payments is not treated as income, but properly in the month received, because a reverse mortgage is a conversion of an exempt asset, equity in one's home, to a non- exempt asset: cash.

The property received would be subject to the monthly asset limits, $2,000 if single and $95,100 if living in the community and your spouse is in a facility.  Any amount over and above those figures would first need to be spent down prior to being eligible to receive services during that month.

Here is a write up titled Treatment of Reverse Mortgage/Home Equity Payments
Under the Medi-Cal Program

Also see the discussion at the Elder Law Vault.

So, to summarize, it is possible to legally have a reverse mortgage and Medicaid, Medi-Cal or SSI but care must be taken not to 'break the rules'.

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