By Ed Hoffmann

One of the first rules of business is to never argue with potential clients. It’s a proven way to lose the opportunity to work with them. And their families. And their friends. But I couldn’t help myself.

I was one of six speakers at a community aging-in-place event, where the entire group was focused on services, products, and trends designed to help people live safely, comfortably, and happily in their own homes for as long as they are able. Speakers, all of them educated in their respective fields of expertise, included an elder law attorney, a home remodeler, an in-home health care provider, a representative from a national nonprofit organization, and a financial planner.

Among the attendees was a woman who insisted the income from a reverse mortgage would eliminate her mother's Medicaid eligibility. She argued that someone from Washington State’s Department of Social and Health Services (DSHS) had told her mother any income over $2,000 per month would cause her Medicaid benefits to be completely forfeit.

At that point, the woman was done listening to any of the speakers. She’d done her research. Her mind was set. How could the information delivered directly from DSHS be wrong?

It wasn’t. It just wasn’t fully explained. DSHS oversees Medicaid eligibility in the state of Washington, and its rules say that a single person must earn less than $2,000 per month in order to qualify for Medicaid benefits. Married couples must earn less than $3,000 per month.

However, Washington Administrative Code (WAC) #388-470-0045.2a states, "Reverse mortgages and real property lines of credit are both (loans) against the equity of someone's home. Loan (proceeds) are excluded as income." This applies no matter how much the homeowner receives each month.

The truth is, proceeds from the increasingly popular reverse mortgages are not considered current “income.” Because they come from equity already owned by the senior homeowner, they were “earned” in prior years.

Yet, this woman’s mother should take caution, as the DSHS can consider bank account balances as liquid assets. Medicaid recipients must keep their monthly bank balances below a required level, which varies from person to person.

According to WAC #388-470-0045(4), "Funds put into a bank account may be excluded as a resource for six months from the date of deposit." That gives the owner of a reverse mortgage up to six months to either spend his or her "surplus" proceeds, or simply keep them as "mattress money."

Normally, I'd recommend that homeowners use those so-called surplus funds to improve their home or their lives, or even to pay down their reverse mortgage debt. They can spend it on long-term care insurance, home remodeling, or estate planning; tithe to their church; or give it to heirs—while they are still alive and able to enjoy seeing the benefits.

Can you imagine being forced to spend your “surplus” money, while keeping your home and your Medicaid benefits?

Neither could the woman at that aging-in-place meeting.