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Effective: December 1, 2006 |
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19.10.10ar1 - Self-Support Excluded Assets (Archive) |
Archived: April 1, 2008 |
Self-Support is the use of certain property to earn wages, to produce goods and services for personal use, or to derive income from property. It is not the same as Self-Employment. See Self-Employment Excluded Assets for more information about these assets.
MinnesotaCare, MA Method A and GHO.
Non-Income Producing Self-Support Assets.
Income Producing Self-Support Assets.
MinnesotaCare, MA Method A and GHO
There are no self-support provisions for MinnesotaCare (MCRE), MA Method A or GHO.
Do not exclude liquid personal property unless it is used as a part of a trade or business. This includes:
l Bank accounts.
l Stocks and bonds.
l Mutual funds.
l Property agreements.
There are four different exclusions allowed for self-support assets for MA Method B and GAMC which are based on varying criteria.
l Exclude assets covered in a Plan to Achieve Self Support (PASS) .
l Income Producing Self-Support Assets.
l Non-Income Producing Self-Support Assets.
l Employed by Another.
n Exclude the non-liquid personal property used by an applicant/enrollee that is used in employment, whether it is required by the employer or not.
Example:
Hal is an auto mechanic and prefers to use his own tools for his job, even though the employer provides tools.
Action:
The value of Hal’s tools is excluded.
n Allow an exemption for assets not in current use for reasons beyond the client’s control, and if the client expects to resume use within one year.
Note: Extend the exclusion for an additional one year if the nonuse is due to a disabling condition. To qualify for the extension the client must sign a statement indicating:
m The nature of the disabling condition.
m When the activity ceased.
m When the activity will resume.
Non-Income Producing Self-Support Assets
Follow the policies outlined in this section for MA Method B and GAMC only.
l Exclude up to $6,000 of the equity value for each asset meeting all of the following conditions:
n The asset is non-income producing.
n The asset is real property or non-liquid personal property.
n The client currently uses the asset to produce goods, food, clothing or services needed for daily activities.
n The asset is used solely by the client’s household.
l Do not exclude any vehicle that qualifies as an automobile with this provision. It only applies to other types of vehicles such as a boat used for sustenance fishing.
Example:
Mai owns an acre of land on which she grows vegetables solely for her family. The land is valued at $10,000 and Mai owes $3,000 to the bank resulting in an equity value of $7,000.
Action:
$6000 of the equity is excluded for self-support. $1000 will be counted toward Mai’s asset total.
l Allow this exemption for assets not in current use for reasons beyond the client’s control, AND if the client expects to resume use within one year.
Note: Extend the exclusion for an additional year if the nonuse is due to a disabling condition. To qualify for the extension the client must sign a statement indicating:
n The nature of the disabling condition.
n When the activity ceased.
n When the activity will resume.
Income Producing Self-Support Assets
Follow the policies outlined in this section for MA Method B and GAMC only.
This exclusion involves non-business (not used in a trade or business), non-liquid, real or personal, income-producing property. Some examples of this are:
l Farm land rented out by a person who is not actively farming.
l A home rented out by the owner who no longer lives there.
Exclude up to $6000 of the equity value of non-business, non-liquid, income-producing property that produces an annual return of at least 6% of the equity value.
l The $6000 exclusion is limited to the combined equity value of all property meeting the 6% rule.
l If the client owns more than one piece of income-producing property, each piece must meet the 6% return on the equity value.
l If the earnings drop below 6% for reasons beyond the client’s control, continue to exclude the property for up to 24 months, to allow the property to resume producing a 6% return.
Example:
Constance inherits her mother’s home and rents it out. The home’s fair market value is $70,000 but she has a $60,000 mortgage on the property. Constance receives a net rental income of $300/month.
Action:
1. Determine the equity value of the property. $70,000 FMV - $60,000 mortgage = $10,000 equity value.
2. Determine the annual return on the property. $300/month X 12 months = $3600 annual return.
3. Determine 6% of the equity value. $10,000 equity X .06 = $600.
4. Determine if the property produces a net income in excess of 6% of the equity value. $3600 annual return is greater than $600 (6% of equity).
Because the property meets the criteria for this exclusion, the first $6000 of equity will be excluded. $4000 of the equity will be counted toward Constance’s asset total.
Example:
Kaleel owns three plots of land, not attached to his homestead, which he rents out. Plot One has a fair market value of $4,000 and does not have any encumbrances. Kaleel rents Plot One to his neighbor and gives him a deal on the rent. The net rental income per month is $10. Plot Two has a fair market value of $8,000 and Kaleel owes the bank $4,000. The net rental on this plot is $500 each month. Plot Three also has a fair market value of $8,000 and a $4,000 debt. As with Plot Two the net monthly rental income is $500.
Action:
1. Determine the equity value of each property.
a. Plot: One $4,000 FMV - 0 = $4,000 equity value.
b. Plot Two and Plot Three: $8,000 FMV - $4,000 encumbrance = $4,000 equity value.
2. Determine the annual return on each property.
a. Plot One: $10/month X 12 months = $120 annual return.
b. Plot Two and Plot Three: $500/month X 12 months = $6,000 annual return.
3. Determine 6% of the equity value for each property.
a. Plot One, Two and Three: $4,000 equity X .06 = $240.
4. Determine if the property produces a net income in excess of 6% of the equity value.
a. Plot One: $120 annual return is less than $240 (6% of equity).
b. Plot Two and Three: $6,000 annual return is greater than $240 (6% of equity).
Based on the above calculations, Plot One cannot be excluded and the entire $4,000 of equity will be counted in Kaleel’s asset total. Plots Two and Three will be able to use this exclusion. Only $6000 total of equity for these properties combined can be excluded, thus the $4000 equity on Plot Two will be excluded and $2,000 equity of Plot Three. The remaining $2000 of Kaleel’s equity on Plot Three will be counted in Kaleel’s asset total.