12 May How to Spend Down Assets for Medicaid in Illinois
How to Spend Down Assets for Medicaid in Illinois
Strategic Asset Management to Achieve Medicaid Eligibility While Preserving Family Financial Security
By Martin Fogarty, Founder of ElderSmart
“We have $150,000 in savings, and my husband needs nursing home care.”
“The social worker said we need to ‘spend down’ our assets before we can get Medicaid. Does that mean we have to lose everything?”
This question breaks my heart every time I hear it—not because the family will lose everything, but because they’ve been given incomplete information that could cost them tens of thousands of dollars if they follow it blindly.
Over my three decades of elder law practice in Illinois, I’ve watched countless families make devastating financial mistakes because they misunderstood what “spending down” really means for Medicaid eligibility. The phrase itself is misleading—it suggests you must simply exhaust your assets, when in reality, strategic asset management can help you achieve Medicaid eligibility while preserving significant family wealth.
The difference between strategic and haphazard spend-down can mean the difference between preserving $50,000-$200,000 for your family and losing it all to unnecessary private-pay costs.
Understanding “Spend Down”: Beyond the Common Misconception
When most people hear “spend down assets for Medicaid,” they think it means spending money until it’s gone. This fundamental misunderstanding has cost Illinois families millions of dollars in assets they could have preserved.
The real goal of spend-down isn’t to eliminate wealth—it’s to reduce countable assets to Medicaid eligibility levels while maximizing the benefit to you and your family.
What Medicaid Actually Counts as Assets
Countable Assets (Must Be Spent Down):
- Bank accounts and certificates of deposit
- Stocks, bonds, and mutual funds
- Second homes and investment property
- Boats, RVs, and recreational vehicles
- Whole life insurance with cash value over $1,500
- IRAs and 401(k)s (for the applicant)
Exempt Assets (Don’t Count Toward Limits):
- Primary residence (with equity limits)
- One vehicle of any value
- Personal belongings and household goods
- Burial plots and spaces
- Term life insurance
- Wedding and engagement rings
Illinois Asset Limits: The Target Numbers
For 2025, Illinois Medicaid asset limits are:
- Single applicant: $2,000 in countable assets
- Married couple (both applying): $3,000 in countable assets
- Married couple (one applying): Community spouse can retain up to $154,140 (2025 figure)
The spousal protection rules create significant opportunities for strategic spend-down that many families never realize exist.
Strategic Spend-Down Approaches:
Effective spend-down strategies focus on converting countable assets into exempt assets or necessary expenses that benefit the family while achieving Medicaid eligibility.
The Asset Conversion Strategy
Rather than simply spending money, strategic families convert countable assets into exempt assets:
Home Improvements and Repairs: Imagine a Schaumburg family with $80,000 in savings. Instead of spending this money on nursing home care, they invest $50,000 in home improvements: new roof ($25,000), bathroom accessibility modifications ($15,000), and HVAC system replacement ($10,000). They’ve reduced countable assets by $50,000 while increasing the value of their exempt primary residence.
Vehicle Purchases: Picture a Rockford family needing to spend down $30,000. They purchase a reliable vehicle for the community spouse ($25,000), leaving $5,000 in remaining countable assets while achieving Medicaid eligibility and securing reliable transportation.
The Necessary Expense Strategy
Strategic spend-down includes paying for legitimate expenses that improve quality of life:
Medical and Dental Care: Consider a Springfield family with $40,000 in excess assets investing in dental work for both spouses ($8,000), hearing aids ($6,000), vision care and glasses ($2,000), and medical equipment for home ($4,000)—totaling $20,000 on necessary health improvements.
Debt Elimination: Paying off legitimate debts is an excellent spend-down strategy. Imagine a Naperville family with $100,000 in savings and a $60,000 mortgage. They pay off the mortgage, leaving $40,000 in countable assets while eliminating the monthly mortgage payment for the community spouse.
Spousal Protection During Spend-Down:
When one spouse needs Medicaid while the other remains in the community, Illinois provides significant protections that create unique spend-down opportunities.
The community spouse can retain assets up to the CSRA limit ($154,140 in 2025), plus additional exempt assets. Picture a married couple in Joliet with $200,000 in joint assets. Through optimal asset titling, the community spouse retains $154,140 (maximum CSRA), requiring spend-down of only $45,860—much less than most families expect.
Common Medicaid Spend-Down Mistakes
Mistake #1: Panic Spending Without Strategy
The Wrong Approach: A worried family in Aurora spends $50,000 on unnecessary items, expensive furniture, and lavish vacations—money gone with little lasting benefit.
The Strategic Approach: The same family with professional guidance invests $30,000 in home improvements, purchases necessary medical equipment ($10,000), and pays for needed dental work ($8,000)—same spend-down amount, significant lasting value.
Mistake #2: Making Gifts During Spend-Down
The Penalty Trap: A Champaign family gives $40,000 to children during spend-down, thinking this counts as “spending down.” This actually triggers a 5.7-month penalty period and months of Medicaid ineligibility.
The Legal Alternative: Consider paying children for legitimate caregiver services at fair market rates with proper documentation—legitimate spend-down without penalties.
Mistake #3: Poor Timing of Asset Conversions
Asset conversions should be completed before Medicaid application to avoid scrutiny. Planning ahead with clear documentation of legitimate purposes ensures a smooth Medicaid application process.
Spend-Down Strategies for Complex Situations
Business Ownership Complications
- Transfer business interests to non-applicant spouse
- Structure business to minimize countable value
- Use business assets for legitimate business expenses
Retirement Account Management
- Consider spousal rollover options for married couples
- Plan strategic withdrawal timing to minimize tax impact
- Coordinate with overall spend-down planning
Real Estate Investment Complications
- Time property sales to minimize tax impact
- Use property proceeds for legitimate spend-down purposes
- Consider installment sales to spread tax liability
Family Examples: Strategic vs. Poorly Planned Spend-Down
The Strategic Approach:
Starting Situation:
- Countable assets: $180,000
- Primary residence: $400,000
- Husband needs nursing home care, wife remains in the community.
Strategic Spend-Down Plan:
- Community spouse retains maximum CSRA: $154,140
- Spend-down requirement: $25,860
- Strategic spending: Home accessibility improvements ($15,000), new vehicle for community spouse ($8,000), dental work for both spouses ($2,860)
Results:
- Medicaid eligibility achieved
- Community spouse is financially secure with $154,140 protected
- Home value increased by improvements
- Total preserved: Over $150,000 in family wealth
The Poorly Planned Alternative
The same family without professional guidance assumes they must spend everything, pays for nursing home privately ($50,000), continues paying until assets are exhausted, and applies for Medicaid only when broke.
Result: Community spouse left with minimal resources, no lasting benefit from spent assets, and over $150,000 lost that could have been preserved.
The Difference: $150,000 in Family Wealth
The strategic approach preserved $150,000 more in family wealth than the haphazard approach, all while achieving the same Medicaid eligibility outcome.
Your Next Steps for Strategic Medicaid Spend-Down
If You Need Immediate Spend-Down Planning
- Stop all financial activity until you have professional guidance
- Gather complete financial documentation from the past 5 years
- Schedule emergency consultation with an Elder Law attorney
- Don’t make any gifts or transfers without professional approval
- Document all medical and care needs for spend-down planning
If You’re Planning Ahead:
- Complete comprehensive financial assessment with professional guidance
- Understand your family’s specific Medicaid planning needs
- Develop long-term asset protection and spend-down strategies
- Implement plans with proper timing and documentation
- Establish ongoing monitoring and adjustment systems
Common Questions About Illinois Spend-Down Strategies:
How long do we have to complete spend-down activities?
There’s no specific deadline, but strategic timing is crucial. Asset conversions should generally be completed before applying for Medicaid to avoid scrutiny.
Can we make improvements to a home we don’t live in?
Only improvements to the primary residence are generally exempt. Investment property improvements are typically not allowable spend-down strategies.
Can we pay family members for caregiving during spend-down?
Yes, if properly documented and at fair market rates. Caregiver agreements should be established before services are provided.
How do we document spend-down activities for Medicaid?
Keep detailed records, including receipts, contracts, photos, and explanations for all expenditures. Professional documentation is crucial for larger expenses.
Strategic Medicaid Spend-Down as Family Wealth Preservation
After three decades of helping Illinois families navigate Medicaid spend-down requirements, I’ve learned that the phrase “spend down assets” is fundamentally misleading. What we’re really doing is strategically managing assets to achieve Medicaid eligibility while preserving maximum family wealth and security.
The difference between strategic and haphazard spend-down can mean the difference between preserving $50,000-$200,000 for your family and losing it all to unnecessary expenses. The difference between professional guidance and going it alone can mean the difference between optimal outcomes and costly mistakes that can’t be undone.
The families who fare best aren’t necessarily those with the most resources—they’re the families who understand that how you spend down matters more than how much you spend down, and who get professional guidance to implement strategies that preserve wealth while achieving eligibility.
Your family’s financial security during what may be life’s most challenging chapter depends on the spend-down decisions you make today. Don’t let misconceptions about “spending everything” cost your family the financial security that proper planning could preserve.
Professional Guidance:
Contact ElderSmart today for a comprehensive spend-down strategy consultation. Whether you’re facing immediate needs or planning ahead, we’ll help you achieve Medicaid eligibility while preserving maximum family wealth and security.
Martin Fogarty is the founder of ElderSmart and has spent over three decades guiding Illinois families through complex elder care decisions. His approach combines deep legal expertise with genuine compassion, earned through both professional experience and his family’s personal journey through long-term care challenges.
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