Do I have to give this life insurance policy to Medicaid?


Q. My husband was on Medicaid, ended up in a nursing home and died in January 2022. I received a letter from Medicaid saying his life insurance policy, which was about $47,000 and had a cash value of $3,800, had to be surrendered. They said I could have given it to the funeral home, spent down the money for his expenses, had my husband put the policy in my name (which would have made me lose my Medicaid) or surrender it to Medicaid. I used it to pay credit card debt and I’m left with nothing. Was Medicaid right that I should have turned it over to them?
— Widow

A. We’re sorry to hear about your husband.

Medicaid has very strict rules about assets and income, and what happens to assets when a person who was receiving benefits dies.

The Managed Long Term Services and Supports (MLTSS) is a Medicaid program that offers long-term care in the community as well as in certain assisted living facilities and nursing homes for qualified individuals, said Shirley Whitenack, an estate planning attorney with Schenck, Price, Smith & King in Florham Park.

In order to qualify for MLTSS, the nursing home resident cannot have more than $2,000 of countable assets, Whitenack said.

“A term life policy which does not have a cash surrender value does not need to be liquidated,” she said. “However, the cash surrender value of a life insurance policy is a countable asset and therefore, needs to liquidated and spent down if the policy’s face value is more than $1,500.”

One possible option would have been to take out a loan on the cash value, Whitenack said.

“This reduces the cash value and the death benefit but keeps the policy in place,” she said. “Readers who own whole life policies and need to apply for Medicaid should consult an attorney to decide which option is best considering the reader’s circumstances.”

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This story was originally published on Sept. 21, 2022. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.