Let’s just get this out of the way: “equity value” means exactly what you might think. It’s the fair market value of an item minus any debt against that item. Now let’s talk about why equity value matters.
Is it Really that Simple?
It would be nice if we could talk about Medicaid and long-term care planning without having to redefine terms. In most legal situations, we rely on the “plain meaning” of a word or phrase. But in so many cases, the Medicaid rules put a slight spin on the meaning of certain terms. That makes understanding the Medicaid definitions that much more important.
But in this case, the plain meaning is the same as the Medicaid meaning. That’s a breath of fresh air to those of us who spend all day, every day sorting out the Medicaid rules. Instead of worrying about the value of a resource, we get to focus on how the Medicaid rules use a property’s equity value in the context of eligibility.
How Does the Equity Value Work in Medicaid Planning?
When we talk about values for Medicaid, we start by dividing assets between countable and non-countable resources. As a matter of fact, certain assets can only be considered “non-countable” if their equity value is below a certain amount (e.g., the primary residence). In most cases, however, the Medicaid rules only care about the equity value of countable resources.
Let’s use a simple example. Suppose you have a life insurance policy with $15,000 of cash surrender value (CSV). If you don’t take any additional actions, the $15,000 CSV is the value Medicaid considers for determining eligibility.
But if you take a loan on the policy, you could reduce the total value by the amount of the loan – say $13,500. Now, Medicaid will only count the remaining balance – the equity value – of $1,500.
The impact of this approach is that it allows you to keep the life insurance policy while still spending down its value. Imagine owning a piece of real estate that is a countable resource. If you could keep that real estate while still spending down it’s countable value to get on Medicaid, wouldn’t that be preferable to selling the real estate outright?
Should Old People All Take out Long-Term Loans?
Absolutely, unequivocally: NO. The equity value matters, but borrowing against an asset may not be the best financial decision. There are probably many other options to consider, and you will probably need to clear things with your bank before doing anything.
It almost goes without saying, but: don’t borrow money against your property until you talk to an elder law expert!
The tricky situations that come with property values, equity, and debt are part of what we deal with at Huizenga Law. We look for every possible solution and then present you with your options. That way you can make an informed decision about how to protect your assets from the nursing home.
And, most importantly, we want to take care of you and your family as well as we can. Call our office in Orange City at (712) 737-3885 to get started with an initial Family Care Meeting today!