If you’re considering a reverse mortgage and currently rely on Medicaid—or think you might need it later—it’s smart to understand how the two can interact. While a reverse mortgage can offer financial relief, it might also affect your eligibility for means-tested benefits like Medicaid.
Understanding reverse mortgage income
A reverse mortgage allows homeowners over age 62 to convert home equity into cash without selling the property. You can receive payments in several ways: lump sum, monthly payments, a line of credit, or a combination. The cash you receive from a reverse mortgage isn’t considered taxable income. However, if you don’t spend it in the same month you get it, it could count as an asset in the next month.
How Medicaid treats assets and income
Medicaid eligibility depends on income and assets. In New Jersey, the monthly income and asset limits are strict. If reverse mortgage funds remain in your bank account beyond the month they’re received, they could push you over the asset limit. This might cause your Medicaid benefits to stop until your assets drop back below the threshold.
Protecting your Medicaid eligibility
To avoid qualification issues, carefully time how you use reverse mortgage proceeds. Spend the money within the same month it arrives, especially if you’re near the asset threshold. Also, consider talking to a financial advisor familiar with elder law planning.
Another strategy is setting up a Medicaid-compliant trust. These trusts can help shelter assets legally, but they require careful planning and may not be right for everyone.
Planning carefully makes a difference
This type of loan can offer financial flexibility, but it also adds complexity if you’re receiving Medicaid. By understanding how your choices affect eligibility and spending the funds strategically, you can avoid unintentional setbacks.