The first question “Is paying cash a problem when it comes time to file for Medicaid?”  I’d love to hear feedback from our subscribers if you enjoy this new addition.

Click on http://www.youtube.com/HauptmanLaw Elder Law Minute Season 1 Episode 1 to see my answer.

 Let’s first review the Medicaid basics.  As the healthy spouse, George’s wife, Claire, can keep the home and just under $110,000 in assets.  The rest of their $800,000 in liquid investments must be spent down or converted to non-countable assets.  The building and business are also countable – well maybe.  Medicaid rules allow for inaccessible assets to be treated as “excludible”, in essence not countable towards the $110,000 limit.

It may be possible to treat them as inaccessible, if they can’t be sold easily.  Remember that this is a family business and the real estate is an industrial building that houses the business.  Neither is easy to sell on the open market.  John then reminded me that he and his brother, James, run the business and want to keep it.  “It was always Dad’s plan to give it to us,” he told me.

Unfortunately, his failure to put that succession plan in place makes it much more complicated  to do now.  “If he gives you the business and building now,” I told John, “it is a transfer subject to a Medicaid penalty and he must provide for his nursing home care for the next 5 years before he can qualify for Medicaid.   That would be roughly $500,000, leaving  your mom with  $300,000 and the house.”

There was a long pause and then  John said “that’s not a whole lot for Mom to live on and she could live another 10 or 15 years or more.  Are there other options?  I then explained that he and James could buy both assets themselves.  “But we don’t have $1,000,000 to buy both,” John exclaimed.  Well, then, they could buy the business and we could treat the building as inaccessible.  Claire could also possibly buy a bigger home, with some of the countable assets, which would still be exempt.  This would mean they could preserve more than the $110,000 for Claire.

It all was very confusing to John, which I certainly can understand.  And not the best time for his family to have to make such important decisions, in what we call “crisis mode”.  I told John that we could definitely help him but there is a lot to do and no time to waste.  John scheduled an appointment for his family to meet with me.  Before he hung up the phone he said that the fact his dad had never completed a succession plan or purchased long term care insurance was always in the back of his mind but he now realizes, for the first time, how devastating those oversights turned out to be for his whole family. I couldn’t agree more.

 At first, it looked like George would make a complete recovery, but then he suffered a setback, a second stroke resulting in permanent paralysis.  It became clear that he would need long term care.  Claire didn’t want to place him in a nursing home, thinking she would be able to care for him at home.  Very quickly, however, the family realized that they would need home health aides.  Providing care is exhausting, physically and emotionally, and Claire, at 70, just couldn’t provide the round the clock care that was needed.

 For the first time, George’s family faced the reality of the long term care system and they were shocked.  George and Claire never did buy long term care insurance.  The health insurance plan that they had for years through the business, they soon learned, didn’t cover the type of custodial care George needed.  They were facing $100,000 a year in expenses and no insurance coverage for it.

 That’s when John called us, hoping we could help.  I went over the financial numbers.  George and Claire owned a house and about $800,000 in investments.  George also owned the business and the building which houses the business,  John estimated the combined value at over $1,000,000 but he wasn’t confident in those numbers since they had never before valued either.  Then John asked the $64,000 question.  Could they get any help, meaning government benefits?

 I explained how Medicaid works, that it’s a needs based program.  Claire, as the healthy spouse, could keep the house and just under $110,000 before Medicaid would cover George’s care.  “Does that include the business and the building?”, John asked.  “Dad always talked about a succession plan to transfer ownership to James and I, but he just never got around to doing it.”  Next week I’ll tell you what I told John.

Paul’s initial statement about never qualifying, or thinking he might need, Medicaid for his mother is a common one.   It assumes that there is one sole concern, long term care for Mom.  While that is certainly the primary concern, in this case it isn’t the only one.  As we learned, Paul’s brother, Bill, is unable to support himself.  Although he hasn’t been deemed disabled or been clearly diagnosed as far as Paul knows, Bill will likely need assistance the rest of his life.

Mom attempted to address his needs by leaving a portion of her estate to Paul to help provide for Bill’s needs (as I have written in previous posts,  not the optimum way to do this. A trust for Bill’s benefit is a much better way to go).  The more she spends for her care, however, the less there will be to support Bill.  That’s why Medicaid is important here.

I told Paul I could help but we’d have to act quickly.  We could set up a trust and transfer a portion of his mom’s assets to that trust.  But we need to keep enough assets in her account to cover 5 years of nursing home care.  Why? Because when we apply for Medicaid we’ll need to show, that from the date we apply going back 5 years, that she didn’t make any transfers for less than fair value, which, of course, she would have done.

I know what you may be thinking.  Why should the government pay for her care when she has the money to pay for it herself?  But is it really that simple?  Life rarely is.  Bill has no way to support himself.  He’ll end up destitute and Paul doesn’t have the means to support him.  Mom had always intended to provide for his care.  She just didn’t go about it the right way.  Luckily, Paul called us with enough time to fix things.  Mom will still pay plenty towards her care, probably close to $600,000 if she lives 5 years but there should be enough left for Paul to provide for his brother.

Paul’s scenario is not all that uncommon.  Families are often wrestling with more than one problem at a time.  Long term care is the most pressing one but there other competing interests.  It is, therefore, critical that you take a wider view of the landscape and over a longer time frame.  Which means that you might not have enough money as you think you have and it may be time to put a better plan in place.

 Why did I say that?  Doing some quick math, spending approximately $100,000 a year of her assets on nursing care, it will take 10 years before Paul’s mom spends it all.  A 10 year stay isn’t all that likely, is it?  After all, she would be 98 at that point.  Not likely, but it is certainly possible. But let’s say she doesn’t outlive her money.  What if, instead, she lives in a facility for 6 years or 8 years and spends $600,000 or $800,000?  

 I told Paul that whatever is left will be passed on to her heirs in her will.  The exact amount will depend on how long she lives and how much she uses for her care.  I then asked if she had a will.  That’s when he told me that Mom has 3 children, but Paul’s brother Bill has “issues”.  “He hasn’t been deemed disabled or even diagnosed with anything”, Paul told me, “but Bill never married, has never held a job for very long and is just ‘off’.”

 Paul told me that Mom’s will leaves 2/3 of her estate to him to look after his brother.   I then asked about Bill’s situation, his financial needs.  Not surprisingly, he has nothing to his name.  As we were talking, Paul had an “aha” moment.  He realized that there just might not be all that much left for Bill and that the financial burden would fall to him.   Suddenly, Medicaid seemed to be more relevant.  Paul grew concerned and asked, “Is there anything you can do to help me?”  “Actually, there just might be”, I told him.

Next week I’ll share with you what I told Paul.

We learn that the assets Gloria is trying to protect include a house and a car.  The writers do get something right.  Medicaid will likely scrutinize a divorce settlement that leaves all the assets to the healthy spouse.  But, if it is true that those are the only assets, any elder law attorney knows that Gloria can keep them under Medicaid spousal protection laws.  A divorce is unnecessary.

Let’s change the facts a bit.  Even if the couple have some money in the bank, Gloria can keep some or possible all of it, or at least spend it in a way that is more beneficial to her.  For example, if they have an additional $25,000 in assets she can keep almost $21,000 of it under Community Spouse Resource Allowance Rules.  The rest can be applied, for example, to a prepaid irrevocable funeral for Abe.

There are other possibilities, although the writers didn’t tell us enough about the couple to be able to say for sure.  Is Abe a war time veteran?  If so, then Gloria may be able to qualify for nearly $2000 a month of tax free income to help pay for his care under the VA’s Aid and Attendance program.

And what about the discussion about the ethics of a divorce?  We learn that Gloria has been unhappy in her marriage for years.   Medicaid isn’t her sole motivation so would she really be committing fraud?  Is it true that, as one of the attorneys in the firm says, her failure to plan is bankrupting the country?  We don’t know enough about how Gloria and Abe got to this point – how much money they had over their marriage and how they spent it – to be able to answer that question.  Maybe this is all they ever had in their lifetime.  Their house is their nest egg so what exactly did they do wrong? 

It is unfair and inaccurate to put the entire blame on the backs of individual Americans.  The problem of long term care is much more complicated than that.  The cost keeps climbing exponentially and we are living longer than ever before.  How were Gloria and Abe – or any of us for that matter – supposed to plan for that?

It’s 9:50 and Harry and her attorneys have only a few minutes to wrap up Gloria’s problem into a nice neat solution.  After all, they’ve got to get through the credits and at least 3 commercials before the next show in NBC’s lineup at 10p.  In typical TV fashion, Harry’s partner Tommy says he will pay for Abe’s care, even 24 hour care.  At an average cost of $120,000 per year that’s mighty generous of Tommy.  I doubt he realizes what he has just offered.

That’s clearly not a realistic solution, but the show’s writers can get off the hook that way.  They can write it anyway they want and in TV land you’ve got to have a nice neat ending.  It’s just that, in the real world, you can’t script it that easily.  It takes much forethought and planning. 

If I was writing the ending I would have sent Gloria to an elder law attorney to help guide her through what will surely be the most challenging time in hers and Abe’s life.  There are solutions.  She just has to get the right advice.  Who knows?  Maybe that can lead to a spin off series for NBC about an elder law firm.

 An elderly married couple, Gloria and Abe, meet with one of the lawyers in the firm.  Gloria explains that Abe has Alzheimer’s and that he needs full time care which they can’t afford without selling the house.  She wants a divorce from Abe, allowing her to keep their assets and permitting him to qualify for Medicaid.

 Much of the discussion amongst the lawyers in the firm focuses on the ethical issues.  Would Gloria be committing fraud?  Would Medicaid challenge the divorce settlement?  Should the country help Gloria and Abe (and others) who failed to plan for long term care? 

Later in the episode we learn that Medicaid isn’t Gloria’s sole motivation for seeking divorce.  She has been unhappy for much of their 40 year marriage.  The stress of Abe’s illness has just aggravated the situation.

 It all makes for great drama, but as so often happens with television and movies, in an effort to make the story “more sexy” and in the interests of time (after all, the show is only an hour and there is more than one plot line in each show) the truth sometimes falls by the wayside.  Next week I’ll share with you where the writers went wrong and why you don’t want to get your elder law advice from television.

 Richard West, a Medicaid recipient afflicted with muscular dystrophy, who needs nursing assistance and uses a ventilator, learned that certain of his vital services were being cut back because he had “maxed out” his benefits.  Although severely disabled, he still has mental capacity – and determination.  He checked his medical records and discovered that the home health care company that provided him with nursing care was overbilling Medicaid.  He tried reporting what he found to several government hotlines, but got nowhere so he hired an attorney.

 The healthcare company, Maxim Healthcare, has several hundred offices around the country.  The case involved 4 federal agencies and the Medicaid fraud units of at least 3 states.  The investigation reached through almost every state in the country.  For at least 6 years, Maxim billed Medicaid for services it never provided, using what is known as “no show” billing.  Nurses were paid for jobs they never had.  After being nabbed, Maxim agreed to return improper payments it received and pay criminal fines, totaling $150 million.  For his part in bringing the fraud to light, Richard West received $15.4 million.
 
 West described his frustration in reporting what he found, first to his county social worker, then to the state Medicaid office and then to a Medicaid fraud hotline number and waiting for action.  As anyone who has ever dealt with government bureaucracy knows, you can wait a long time.  West then took matters into his own hands.  Unfortunately, most Medicaid recipients are too sick, physically and mentally, to take on the fight that West did.

 West was literally fighting for his life.  Take away the vital services that Medicaid provides and he feared that he would die.  Now he has too much money to qualify for Medicaid.  Not exactly the “Medicaid Millionaire” who proponents of Medicaid reform claim are collecting benefits that shouldn’t be.  But it just goes to show you that you can’t rely on the government to take care of you.  It took a wheelchair bound 63 year old man on a ventilator to get the government to pay attention to someone stealing hundreds of millions of dollars right from under its nose.

 The case involved I.M., a 79 year old grandmother who is the primary caregiver for her 21 year old mentally disabled grandson, J.M.  (The court used initials to protect the family’s privacy.)  Their sole source of income consisted of I.M.’s Social Security and J.M.’s disability benefits.  They also both were Medicaid recipients.

 One day the State of New Jersey’s Department of Developmental Disabilities sent I.M. a grant of $2000 to be used for J.M.’s benefit.  She spent $500 and put the rest in the bank for later use, in a savings account payable on death to J.M.  She later changed the account to show that I.M. held it as representative for J.M.

 Well, maybe, if you are a frequent reader of my blog, you can guess what happened.  That account, combined with another account I.M. owned, pushed her over the $2000 limit for Medicaid eligibility, or so said the government.  The State demanded the money back on the threat that they would take away her Medicaid benefits.  I.M. refused and the case went to court.

 On appeal I.M. was victorious.  The court said that the money wasn’t hers simply because she had physical access to it.  She was merely acting in a fiduciary capacity, on J.M.’s behalf, as his representative.  Of course the State gave her the money with that understanding in the first place, but that didn’t seem to stop it from taking action against her for accepting it. 

And that’s what reminded me of the oft repeated phrase “Beware of Greeks bearing gifts”.  The saying is a reference to the story of how the ancient Greeks defeated the Trojans in a long war that lasted 10 years.  Cities at that time were surrounded by walls to protect against invading armies.  The Greeks couldn’t penetrate the walls of the City of Troy so they devised a clever plan.  They pretended to “give up” by offering the Trojans a peace offering of sorts, a wooden horse.  They left the gift outside the city gates and sailed away.  The Trojans saw this and brought the gift inside and proceeded to celebrate their “victory”.  In actuality, the gift was a trick to gain access to the city.  Hidden inside the horse were 30 Greek soldiers.  At night, while the city inhabitants slept, they opened the gates for the Greek army which had surreptitiously returned.  Victory was theirs.

 I am sure that I.M. would agree with my thoughts.  Accept the government grant to help her son but beware, because the same government will try to take away her Medicaid benefits.  It sure sounds sneaky and just reinforces to me why  I do what I do as an elder law attorney, on behalf of my clients.

 The first things we needed were the last 5 years of statements for every asset that Eddie’s parents owned.  We then looked through each one to determine what amounts of money had been transferred from their accounts that Medicaid could consider “transfers for the less than fair value”, that is, transfers for which they did not receive something of equal value back in product or service.  The monies Mom and Dad sent to Ecuador to support family members counted as transfers but we wanted to know what else there might be. 

 Eddie admitted he had no idea since his parents didn’t keep good records and they never discussed it with their 3 children.  Our paralegal painstakingly went through what seemed like a mountain of documents.  She found a total of $40,000 of cash withdrawals over a period of 5 years.  “Not all of that money was sent to Ecuador,” Eddie explained.  “My parents paid for things in cash.  They didn’t believe in credit cards.”    I told him if we could prove what some of that money was used for, by documentation (ie. receipts), we could knock that $40,000 down.

 Our goal was to get that number as small as possible because that is what Medicaid divides by another number to tell us how long the Medicaid penalty would be, how long Mom would have to pay privately for Dad’s care before Medicaid would kick in.  As it turned out, some of the cash was used to pay repairs on the home.  I had Eddie contact the contractor to get an invoice.  That was $10,000 right there.  We also determined that $7500 had been sent to Ecuador 4 years and 10 months ago.  I told Eddie that as long as we apply for Medicaid more than 5 years from the date of those transfers they would fall outside the lookback and we didn’t need to disclose that to Medicaid.

 That left $22,500 unaccounted for consisting of numerous withdrawals of varying amounts from many different accounts over the 5 year period.  I told Eddie that we should file for Medicaid and let’s see what they come up with.  I was confident their number wouldn’t be bigger than ours because I was very conservative in terms of what could be considered a transfer for less than fair value.  But I also know that much of this is subjective and Medicaid may “let certain transactions go”.  That depends on the caseworker, his/her caseload, the timing of the application and my ability to walk the caseworker through our application and the documents we provided.

 At worst, the penalty would be 3 months, meaning Eddie’s parents would have to pay an additional $33,000 at the nursing home’s private pay rate of $11,000 per month. But Mom still has a house worth $300,000 so, I explained, we could work out an arrangement to pay the nursing home from the proceeds of the house if she sells it or have her take a reverse mortgage or have one of the children loan her the money.

 It all made sense to Eddie and that’s what we did.  Medicaid in fact, found $14,000 in uncompensated transfers, resulting in a 2 month penalty.  Eddie was pleased.  Mom would have to pay the nursing home $22,000 but Medicaid then covered the rest.  We ended up saving her at least $40,000, the amount of money she would have had to pay if the penalty had been as much as 6 months or more.  Why?  Because, if Eddie had filed the application himself he would have been totally unprepared to provide the documentation Medicaid needed and to plead his case.  Being at the mercy of the State who knows how high that penalty would have been?

 Not too long ago, we handled a Medicaid application for a family.  Some clients we have worked with for a period of years, guiding them through the various stages of long term care, which culminates in a Medicaid application.  In other cases, we are called upon just before Medicaid is needed.  Eddie’s call about his dad fit the second scenario.  We knew nothing about his parents’ finances and Dad was in a nursing home.  Eddie was panicked about applying for Medicaid as soon as possible to protect as much as possible for Mom.

 I gave Eddie our Medicaid checklist of documents we would need to file the application, including 5 years of financial records for every account Mom and Dad owned.  I explained that we need to closely scrutinize money going into and out of those accounts, looking for transfers for less than fair value.  We want to determine, before we file the application, if there will be any transfers which will cause a Medicaid penalty.  Sometimes we can correct them before we apply or at least gather as much paperwork as we can to present to Medicaid if and when it becomes an issue to limit the penalty.

 Eddie told me not to worry.  Mom and Dad didn’t make any gifts, he told me.  The bank account statements I started to receive, however, painted a different picture.  As soon as we started to review them, we noticed cash withdrawals of, in some cases, $2000 per month.  Eddie told me, “Oh, my folks help out my aunt and her family in Ecuador.  But, that’s not a problem for Medicaid, right?”

 “Actually,” I said, “it is.  That’s a transfer subject to a Medicaid penalty.”  Eddie had a hard time grasping that.  “It’s not a gift,” he said.  “My aunt helped my family when my parents first came to this country when I was a young boy.  My parents are really repaying a debt.”  Unfortunately, Medicaid doesn’t look at it that way.  Under their rules it’s subject to a penalty, a period during which Dad is not eligible for Medicaid, even though he meets all the other Medicaid qualifications.

 Eddie was distraught until I told him what we needed to do but we had to work fast.  Next week I’ll tell you what I told him

 We had a recent situation in which our client, Charlie had long term care insurance and Social Security and pension income that, combined, exceeds the Medicaid reimbursement rate, the amount which Medicaid pays the nursing home.  Charlie’s income plus insurance benefits totaled $7500, while the Medicaid reimbursement rate for the particular nursing home is $6000 per month.  The home charges $10,000 per month to its private pay patients so Charlie was in a bind.  He had too much income to get Medicaid but not enough to pay privately.  It would seem that Charlie had fallen through the cracks.

 We spoke with Charlie’s family about a possible solution.  Charlie was a World War II veteran, having been honorably discharged.   The nursing home bill counts as an unreimbursed medical expense, which easily reduced his income to zero for VA qualification purposes.  He, therefore, was eligible for a VA Aid and Attendance pension of nearly $1650 per month, the maximum amount allowed for his category.  That would bring his income up to $9150. 

We then approached the nursing facility to see if they would take Charlie as a resident.  It seemed to be a win/win.  The facility, while not getting quite the amount they usually charge private pay, still would receive more than the Medicaid reimbursement rate and Charlie’s family would have the peace of mind of knowing that Charlie would have a place to stay.  They could rest assured that he would fall into what I call a black hole of long term care.

 Because Medicaid is so maddeningly confusing.  Because the Medicaid rules vary from state to state.  Because well meaning people hear a snippet of information and pass it on as if it is fact or take what happened in one case they know of and assume the same thing will apply in the next.  All very dangerous and usually wrong.

 Let’s look at the house issue.  First of all, the State has no desire to literally “take your house”, meaning take over ownership.  The State is not in the business of managing real estate.   In certain circumstances, under what is known as estate recovery, the State will place a lien on a Medicaid recipient’s home.   A lien is like a mortgage, a secured interest in your home.

However, what most people don’t realize is that this doesn’t happen until after the Medicaid spouse and the healthy spouse both die.  As long as the healthy spouse is alive the State cannot place that lien on the home.  The spouse can sell it and keep the money but does not have to pay the State back at that time.  In fact, the State, under certain circumstances, might never get that money.

 We try to prepare our clients for the inevitable well intentioned free advice.  “Don’t panic”, we tell them.  “Just give us a call and we’ll reassure you that the path you’ve chosen is the right one.  It’s tough to travel down the elder care journey on your own.  Getting the proper guide makes all the difference in the world.

     A trend we have noticed in recent months in many county offices (Medicaid applications are processed on the county level) is the high turnover of staff and the severe understaffing of offices.  Many offices are filled with inexperienced and overworked employees – a bad combination.  That’s when mistakes happen.  If you’ve been a reader of this blog for even a short time you know how many things can go wrong with a Medicaid application and it’s almost never in your favor. 

     The family doesn’t know the ins and outs of the Medicaid rules.  Completing a Medicaid application is more complicated than preparing the average tax return.   That’s why you hire a good CPA.  The nursing home is not any more equipped to handle it either.  It’s just not the business they’re in and it can cost the applicant and the nursing home tens of thousands of dollars if they make a mistake. 

      The reply I hear so often is “I looked at the application form.  It’s only 8 pages and looks pretty straight forward”.    For the most part that’s true.  Except that it’s not the application that’s really the problem.  It’s all the documentation you must provide and the follow up scrutiny.  Going through the Medicaid process is sort of like undergoing an IRS income tax audit, only worse.  Why? First of all, most people have some basic knowledge of income tax just from the fact they have been filing returns for many years.  Most people who file a Medicaid application, however, do it only once.  They know next to nothing about the laws and regulations (or even worse they think they know and are flat out wrong). 

     Secondly, the tax auditors are so much more experienced than Medicaid caseworkers.  They generally know the tax laws, or at least how to interpret the laws in the government’s favor (which is why you don’t walk into an audit on your own).   You can’t really blame the Medicaid workers.  They are thrown into the job, usually with next to no experience, and try to do their best.  But, in so many cases it’s the blind leading the blind.  When the caseworker says an asset is countable how do you know it really is?  If he/she is wrong you wouldn’t know it.

     So, let’s go back to my original question.  Is there really any easy Medicaid application?  If for the past 5 years you literally never had any assets and only a checking account and lived on Social Security and a pension then, yes, that would be a painless application.  But, that’s a pretty rare occurrence.

     If you’ve got more assets than that, it is impossible to say it will be an “easy” application until an elder law attorney who knows the rules and regulations really scrutinizes all the transactions in every document provided to Medicaid before you file the application, not after.  That’s the best way to insure you’ll have a painless Medicaid experience.

 It’s a good thing Janet called when she did.  Half the refund is hers, no question, but the other half is Murray’s money.  If Murray now has $5000 isn’t that more than the $2000 Medicaid asset limit?  Will he now lose his benefits?  Or is it considered income to Murray, requiring him to turn it over to the nursing home?  Or is it possible that Janet can keep it all?

 This is a very tricky situation, and a clear illustration of how so complicated Medicaid is, even after you have been approved.  First of all, Medicaid rules state that an income tax refund is not considered income so giving Murray’s half to the nursing home isn’t necessary.  OK, so it’s an asset.  Well, then, can Janet keep it?  No, she can’t.  While she can keep any asset she had when Murray was approved for Medicaid (ie. the house and $100,000) and any asset she receives after that point (ie. her half of the refund), Murray cannot transfer his half to Janet.  He would lose is Medicaid benefits.  This is what is called a “post eligibility transfer”.

 So, what options remain?  Janet could spend the money for Murray’s benefit on things he needs, such as clothing, a TV, a companion to assist him etc.  However, she must spend it by the end of the month he received the refund.  Anything left unspent the following month will be added to his other assets.  If Murray is over $2000 in assets that next month he will lose his Medicaid unless he turns the money over to the state.

 It was a good thing Janet called when she did.  Can you imagine if she kept that $5000 and Medicaid found that out the next time she had to complete the paperwork to annually renew Murray’s eligibility?  Losing Medicaid would have cost her $10,000 a month, the private pay rate at the nursing home.  Janet could have potentially lost tens or hundreds of thousands of dollars, sending her to the poorhouse.  Luckily, she sought the proper advice.  But, it just goes to show you there are infinite ways that the Medicaid rules can trip you up.  The problem is you just don’t know what you don’t know.

 These questions refer to what is known as family or “filial” responsibility laws.   More than half the states have some type of law that requires family members to pay for the care of other indigent (poor) family members.  There is a long history of filial responsibility dating back to 17th century England.  The English Poor Relief Act of 1601 required parents, grandparents and children of every poor person to financially support that individual to the extent possible.

 In most states that currently have such laws, they have never been enforced.  Pennsylvania is an exception, but  even there it is by no means easy to do.  As I often explain to clients, just because the state passes a law or makes a new policy or regulation doesn’t mean it is enforceable, legally or practically.

 The Medicaid program is a hybrid in the sense that there are federal laws and state laws that both govern the program.  States sometimes pass laws or regulations that may violate other  federal laws, which they can’t do.  Federal Medicaid laws, for example, state that in determining financial eligibility the assets and income of the applicant and spouse shall be considered.  Adult children aren’t part of that equation.  So, if a state now says that children should pay for care before Medicaid pays, it is making the federal eligibility test more restrictive than what Congress intended, which, again, it can’t do.

 Although I haven’t examined each state’s filial responsibility law, I would say it is likely that no 2 laws are written exactly the same, which will also factor into any outcome.  In New Jersey, the law provides that a child who has “financial means” must pay for the parent.  But what does that mean?  The law doesn’t establish a number or even a method to determine who can afford to pay.  Obviously, these are not easy questions to answer and no one has yet attempted to enforce the law. 

 So, what is the final word on filial responsibility?  There isn’t any right now but, it is important to keep an eye out for trends and changes in the coming years.  And it is important to have someone on your side, such as a competent elder law attorney,  to be able to help you navigate through and around the pitfalls that pop up with regularity in the long term care world.

 That’s when he went to see an estate planning attorney.  As I often explain to people, estate planning focuses on “what happens if you die”.  Jack and Diane executed  a plan that will help eliminate estate taxes through the use of trusts, and will leave their assets to each other and alternatively to, or for the benefit of, their children, one of whom is disabled and is incapable of managing money.   They missed a really big opportunity, however, one that could end up costing them as much as a half a million dollars or more.  The estate attorney didn’t raise the question of “what happens if they don’t die”, meaning they live and get sick and have $120,000 a year in long term care expenses or more, a very real possibility at that time, because Diane had already been diagnosed before they visited that attorney.  They didn’t realize that long term care costs could “solve” their estate tax problem.

 Had Jack and Diane come to us then, we would have started them on the very same plan we are putting in place now.  But, since we know that the government won’t help out until 5 years (because we are transferring assets into trusts and there is a 5 year Medicaid waiting period) Jack must pay for Diane’s care during that time.  Diane’s care now costs $120,000 per year and will only continue to rise.  5 years ago, however, Diane’s care costs were minimal because she was still in the early stages of Alzheimers’, a progressive disease.

 That’s the mistake Jack and Diane made.  Diane’s care costs over the next 5 years will be hundreds of thousand of dollars more than they were in the last 5 years.  You want the 5 year look back to run when your costs are less.  Certainly when Diane received her diagnosis that should have been the alarm sounding that they should work with an elder law attorney to protect what they have, especially when you consider that Jack could live another 30 years and will need to support his special needs child.

 It all goes back to the Medicaid 5 year look back, the penalty and how it is calculated.  When Mary applies for Medicaid she will have to provide 5 years of financial statements for every account that Dad had in existence during that time period.  The State will look for any transfers for less than fair value, meaning transfers for which Dad did not receive anything of equal monetary value back.  Those transfers are totaled up and then divided by the average monthly cost of nursing home care.  That third number is the Medicaid penalty, the number of months Dad will be ineligible for Medicaid benefits from the date he has applied going forward.

 And this is the reason why you don’t want to rush to apply.  Surprisingly, what is considered a transfer triggering a penalty is not always easy to define.  It could be because there isn’t a clear paper trail to establish where money went.  Cash transactions aren’t easily explainable so the State may say they are subject to a penalty and Mary may not have the documentation at hand to prove otherwise.  There are many other examples, too numerous to list here.

 If a Medicaid penalty is set, the only way to eliminate it is to return all the money. Now, you might think, “OK, what’s the big deal”?   Well, if the Medicaid caseworker tells you to explain a particular transaction and you have 10 days to do it, will you be able to get all the necessary documentation together?  Probably not, especially since, in Mary’s case, she wasn’t in charge of Dad’s finances until he entered the nursing home and he was a very poor record keeper.  She may be stuck with a penalty simply because she didn’t have enough time to get the answers.

 There is however, a greater risk.  Let’s say Dad made a transfer of $100,000 to Mary, for her to hold, 4 ½ years ago.  If she applies for Medicaid now, Dad will be stuck with a penalty of 13.7 months.  Mary would need to figure out how to pay for his care for over a year.   On the other hand, if, as I recommend, we do a Medicaid review first, and find that transfer before we apply, then the better course of action is to wait until the 5 year Medicaid look back expires.

 Why?  Because if we wait another 6 months then that transfer won’t fall within the 5 years so there won’t be a penalty.  We will, in other words, qualify Dad for Medicaid 7.7 months sooner, saving Mary approximately $80,000 in long term care costs.  Keep in mind that each case is different and the Medicaid laws are quite complex but it does illustrate, again, why you must have a trusted guide throughout the Medicaid process.

 Bill called us regarding his dad, who is now in a nursing home.   2 ½ years ago Dad transferred $300,000 to Bill and his brother.  Bill said he did this after speaking with friends who he said “had been through the Medicaid process”, his accountant and financial advisor.  He said if Dad needed nursing home care (he was living at home at the time of the transfer) he understood that he could apply for Medicaid, get a penalty assessed because of that transfer and then transfer 1/2 the money back to Dad, reducing the penalty.

 Bill was describing what is known as the reverse half a loaf strategy.  Transfer back a part of the assets, apply for Medicaid, receive a Medicaid penalty, or period of ineligibility and use the funds transferred back to cover that time period.  It all sounded good to him.  Except for one thing.  Earlier this year the State put a stop to the reverse half a loaf strategy.  I told Bill that he would need to either transfer all of the money back and use it for Dad’s care or keep the funds in his name and pay for Dad’s care for another 2 ½ years till the 5 year look back expires.

 That’s when Bill told me his problem.  He didn’t think he would need the other ½ of the $300,000 for Dad’s care and Dad wanted to pay for his grandkids college education so Bill only has enough to cover the next 1 ½ years.  Yet he won’t be able to get Medicaid for 2 ½ years.  Bill’s mistake is that he left himself with no other options.  He expected that things wouldn’t change, that his strategy would work exactly as he planned.  He never considered that the Medicaid rules could change.

 That’s a mistake people so often make when it comes to long term care planning.  They focus on one solution to the exclusion of all else.  But, predicting the future is a risky business.  What works today may not work tomorrow, which is why getting the right advice from someone who has been through the process so many times, such as a qualified elder law attorney, can make all the difference.  I didn’t have a great solution for Bill.  If Dad outlives the balance of $150,000, Bill and his brother will have to come up with the funds to pay for care for another year until he can get Medicaid.  At least he has 18 months to figure that out but that was little consolation for Bill.

 The short answer is no — if Betty follows our instructions carefully.  First of all, she shouldn’t sell the home until Joe is approved for Medicaid.  Why?  Because we don’t want what is a non-countable asset to turn into a countable one.  If Betty’s house is worth $500,000, then she’ll have to spend down those assets until she has no more than a shade under $110,000 before Joe receives Medicaid.  That doesn’t leave her a whole lot to live on and is why I always tell clients that in long term care planning timing is everything.

 When Joe reaches Medicaid eligibility there is what is called a “division of assets”.  The State determines what Betty is entitled to keep.  The house is the biggie.  That means that as long as she lives she does not have to use any of those funds to pay for Joe’s care.  So, if she sells the house, while it does mean that these assets are now countable for Medicaid purposes, that applies only to Betty, if at some point in the future she applies for benefits.  It does not affect Joe’s Medicaid eligibility.  This is very important to Betty because, as I said, she will lose some of Joe’s income and she doesn’t have much  in the way of investments.  She can’t afford the cost of maintaining the home and has determined that renting will cut her monthly expenses considerably.  Betty was relieved to hear what I had to say as I could see the stress just drained from her face.  She was onboard and gladly will accept our guidance.

 In New York residing in an assisted living facility doesn’t establish residency for Medicaid purposes.  However,   Mom hasn’t lived in New Jersey since 2003.  She’d have to move back here to qualify.  Moving directly to a nursing home would work but Mary said it’s difficult to make a move now and she want Mom near to her, which I certainly can understand.  So, New Jersey appears out.

 Let’s go back to New York.  If Mom lived even one day with Mary she’d satisfy the residency requirement.  Alternatively, if she had at any point entered a facility for rehabilitation she’d qualify that way.  Mary needs to go back over the past 8 years and determine if either of these scenarios has occurred.  If so then she’ll be able to get New York Medicaid.  Of course, I am presuming that no transfers for less than fair value have been made and a clear paper trail exists to prove that Mom’s money was spent entirely on Mom’s needs.  Since Mary was not at all familiar with these concepts it is entirely possible that a Medicaid penalty will result.  And, what if she can’t establish residency?  The options are not very appealing.

 And that’s the lesson to be learned.  Mary’s mistake occurred 8 years ago.  She had a plan, moving Mom in to live with Mary.  But, when that fell through she had no contingency plans.  She didn’t consider what would happen if Mom ran out of money.  Mary took for granted that the government would help out.  Unfortunately, it’s not that simple.  Better to plan ahead and get your “ducks lined up”.  Speak to someone who knows the rules and do it well before the money runs out because once the money is gone your options are drastically reduced, and in some cases eliminated altogether.

 The numbers are staggering.  The federal government spent $216 billion on Medicaid in 2009, about 7% of the overall budget.  States spend, on average, 22% of their budgets on Medicaid.  Those numbers are increasing at a rate of 6 to 7%, outpacing the rate of inflation.  The government realizes it must do something to rein in the cost.  As usual, the battleis drawn along political lines.  Republicans are pushing to turn Medicaid into a block grant program.  Democrats are fearful that services will be cut and costs won’t be curtailed if that happens.

 So, what would a block grant program mean?  First of all, under the Republican proposal, there would be set funding levels, rather than open ended funding as there is now.  Less federal funds would be provided to the states, but that would mean more control for them.  Now, all states must follow certain guidelines and offer Medicaid to specific categories of people.  However, they can offer additional programs, provided they apply for a waiver from the federal government.  If Medicaid is converted to a block grant program states would be able to entirely set their own Medicaid rules.  Some state governors feel that their hands are tied in terms of their attempts to “rein in” Medicaid because of the federal restrictions.  A block grant program would “release” those strings.

 What would the change look like?  It’s hard to say specifically, but it is reasonable, in light of tough economic times and government budget deficits, to expect that it will be more difficult to qualify for benefits.  And when can we expect these changes?  The House of Representative passed a proposal but political experts believe the Senate will reject it and President Obama has said he opposes it.  Even if it fails this time around, the issue won’t go away and another presidential election looms in 2012.  A transfer of power could change the political landscape considerably so stay tuned.

 This situation is actually more common than you might think.  Mary and John’s divorce wasn’t too complicated because their children were adults and they didn’t have much other than the house and retirement account, which were close to equal in value. Mary hired an attorney to “put the divorce through” and John represented himself.  For reasons Mary doesn’t recall, John never signed a deed transferring ownership.

 This could be a real problem for both Mary and John.  That’s because unless John can prove he legally no longer owns the home it could be countable and part of a required spend down towards long term care.   One of two things could happen.  If the house is sold then ½ of the proceeds may need to go towards John’s care.  If the home is not sold the state could put a lien on the home for Medicaid benefits it pays out on John’s behalf during his lifetime.  “But didn’t he give the home to Mary in the divorce?”  Well, yes, but he has to prove he received equal value back and he has to actually complete the transfer, which to this point he hasn’t done.

 As long as Mary (or John) can produce a written agreement showing the exchange of the house for the retirement account that won’t be a problem.  Mary assured me it’s in writing.  She just has to dig it up.  I told her now would be a good time to do that.  The longer she waits the harder it may be to locate and the State won’t take her word for it.  They will want the physical evidence.

 She then asked me about preparing a deed.  “Would we need to back date it 15 years,” she asked.  “Absolutely not”, I told her.  The signing date should never be backdated.   “Won’t Medicaid treat the transfer as occurring now, making it subject to the 5 year look back?”  I told Mary that isn’t an issue.  As long as she can prove there was an equal exchange it won’t be subject to a Medicaid penalty and the deed signing is a formality anyway.  Legally she acquired ownership 15 years ago.

 Mary was relieved but she did learn a lesson.  Better to take care of those loose ends now and not allow them to remain untied.  A lot can go wrong in 15 years and her home is essentially all she has. When she does sell it she’ll need to make the money last.   It would be a tragedy if she were to lose any of it.

 I had a conversation last week with a married couple for whom we are preparing a Medicaid application.  John is in a nursing home and Mary is healthy and living at home.  I explained to them that Mary can keep ½ of their countable assets, in their case $75,000, but that they must spend down to below that dollar amount by the last day of the month directly preceding the month we want to qualify John for Medicaid.

 I have had this conversation numerous times with clients in John and Mary’s situation and know all too well that this simple instruction is not always followed.   The largest part of most spend downs typically goes to the nursing home.  But, as most people do, myself included, we wait till we get a bill before we pay it.  If I owe you money, I’m not going to chase after you for a bill.  Whenever you get around to it and invoice me then I’ll pay it.  The longer the money stays in my bank account the happier I am.

 However, this can get you into big trouble and cost you tens of thousands of dollars if you wait for the nursing home bill.  If we want John eligible for Medicaid next month and we know that he owes the nursing home $20,000 for the past 2 months of care but they haven’t yet presented Mary with a bill, it makes no matter whether they legitimately owe the facility the money.  If that $20,000 is still sitting in their bank account next month, causing their account balance to exceed $75,000, John cannot qualify for Medicaid.  Even worse than that, he can’t ever qualify for next month.  He has to wait till the following month, which means they will owe the facility another $10,000, leaving Mary with $65,000 to live on.

 That is why we are so focused on getting our clients to change their habits, which isn’t easy to do.  Their entire lives John and Mary have paid their bills, after the vendor presents them with an invoice.  However, I tell them they must go bother the nursing home to bill them ASAP.   Who chases after someone to whom they owe tens of thousands of dollars?  That’s the way it goes in the Bizarro World of Medicaid and why entering this strange land without a knowledgeable guide can literally cost you tens of thousands of dollars.

 Jim’s mother has kept his father in their home with aides for the past two years but now, he is in the latter stages of Alzheimer’s.  Mom is overwhelmed, stressed and concerned that money is running out.  What will she live on?  Jim is now assisting Mom in searching for a suitable nursing home and hoping to qualify for Medicaid because Mom is healthy and may outlive Dad by some years.  She’ll need every dollar she can preserve.

 Qualifying for Medicaid in the case of a married couple is complicated.  Medicaid takes a snapshot of the couple’s countable assets as of the first day of the first month that the applicant spouse is continuously institutionalized.  That number is then divided in half and the healthy spouse can keep one-half of the assets, but not more than $109,560 (this number is adjusted each year).  The couple must spend down the rest of their assets to below $2000.

 Jim reported to me that one nursing facility told him that his mom could give the facility advance payment of several months of nursing care at their private pay rate while they are applying for Medicaid.  Once the application is approved (it can take 2 to 4 months and sometimes longer to receive word) the facility would refund whatever amount from that deposit they don’t need because Medicaid is then picking up the cost.  So, for example, if they deposit $60,000 with the nursing home to cover the cost of the first 6 months and Medicaid says they will start paying from month 4 then the home would refund $30,000.  Jim said it didn’t sound right to him.  I told him he was absolutely correct.

 What many don’t realize is that the money held by the nursing home on deposit is a countable asset so it affects both the snapshot or starting number and the target spend down or ending number.  That money isn’t part of the spend down until it is paid to the nursing facility for services received.  Medicaid doesn’t allow for payments in advance of services.  If you “pay” the nursing home for 6 months all you have done is move your asset from your bank account to the nursing home’s bank account but it is still yours.

 I explained to Jim that his mom could lose many months of Medicaid benefits, which could dissipate assets she will need for her own care.  He was thankful that he called us when he did.  We are now preparing his dad’s Medicaid application, guiding his mom through the process to insure that she will preserve what little she has left and the nursing home will be compensated for the care they provide.

 It all sounded straight forward.  But then I probed a little bit deeper.  I asked Mary how Dad pays his rent, food, insurance premiums and home assistance with only $1300 each month.  “Well, actually”, Mary told me, “I am supplementing his income.”  I learned that Mary was transferring $750 every month into his account so that he would have enough to pay his bills.  I asked Mary which Medicaid program she applied for. She said she wanted to keep Dad in his apartment as long as she could so she applied for the home based Medicaid program.  That’s all I needed to hear.  I had the answer.

Remember that Medicaid has an income eligibility limit of $2022 per month.  If you have more than that you can’t qualify for some of the Medicaid programs, but you can for others.  In Mary’s case, she applied for one with a hard cap, so to speak.  But, Dad has $1300 in income.  Why wouldn’t he be eligible?

 That’s because there is a specific Medicaid regulation, that counts as income, any regular contributions by family members over an extended period of time.  And that’s exactly what Mary was doing when she deposited $750 each month into Dad’s checking account, giving him $2050 of income per month, $28 over the limit.  I explained to her that it would have been better for her to simply buy her Dad some of the things he needed. This way there would be no income and he would have been well below the income cap.

 The good news is that, with this change, Dad can now be eligible for Medicaid.  The bad news is that it took Mary a year to call us to learn this information.  Dad lost a full year of benefits.  Just another example of how when it comes to Medicaid, looks are deceiving.  What appeared to Mary to be so simple actually cost her tens of thousands of dollars and a lot of heartache and stress.

 The Medicaid penalty is actually a period of months of ineligibility for benefits.  The more money gifted, or more accurately, “transferred for less than fair value”, the longer the penalty.  Sounds fairly straightforward but it isn’t.  That’s because the penalty doesn’t actually begin until the applicant files a Medicaid application and the State calculates the penalty.

 Many people are entirely in the dark about these rather arcane rules and file a Medicaid application only to find out that they will have to transfer money back and spend it down first.  And that decision to apply before transfers back can be a huge mistake.  What if all the money can’t be returned?  Returning part of the gift should at least reduce the penalty, right?

 Well, not necessarily so.  Recently, New Jersey changed its position on partial gift returns, indicating that its interpretation of Medicaid laws now leads it to conclude that only when all the money is returned will it wipe out the penalty.  And that’s one reason I am fond of telling clients and prospects that timing is everything when it comes to Medicaid.

 If I can’t give back all the money Mom gifted to me, but only a part, I may be better off returning it before she files for Medicaid.   Why?  Because, remember, the penalty isn’t calculated until I apply and the State reviews my financial records and determines the exact length.  A partial return before Mom applies for Medicaid won’t result in a reduced penalty because there is only a potential penalty at that point.   If Mom transferred $100,000 to me but I transfer back ½ then when she applies for Medicaid the penalty will be calculated on $50,000, not $100,000.

 The reduced penalty can save some families tens and hundreds of thousands of dollars and possible financial ruin and is another reason why it so important to get proper advice before, preferably years before, an anticipated Medicaid application is to be filed.

Mary was told that John’s long term care insurance counts as income and, therefore, he had too much income to qualify for Medicaid.  Yet he didn’t have enough to cover the private pay cost of the nursing home.  Mary and John were caught between a rock and a hard place.  How was this possible?

 New Jersey has two Medicaid programs that cover nursing home care.  One program is for applicants who have no more than $2022 per month in gross income.  And when we talk about income, we usually mean Social Security and pension, which can’t be modified as long as you live.  A second program exists for those who have income greater than $2022, but the income limit for that program is the equivalent of the Medicaid reimbursement rate.  That rate is what Medicaid pays the nursing home, usually somewhere between $5000 to $6000, depending on the facility.

 John’s insurance policy benefits were being paid directly to him, not to the nursing home.    For that reason, Medicaid treated the payments as income to him , which pushed his “income” to $6500 per month, making him ineligible.  So was that it?  Was Mary out of luck?  Not necessarily.

 With a slight change John could be made eligible.  By having the insurance company send the benefit check directly to the nursing home, it would not be counted as income and John could qualify for Medicaid.  That’s because under Medicaid regulations third party payments for medical care or services, including room and board, are not counted as income.  If the insurance company, as the third party, pays the nursing home directly, then that “income” disappears.

 Crazy, right?  How can a minor change like that affect Mary’s health and well being so drastically?  That’s because, Medicaid regulations are so complex and arbitrary.  Failing to get the proper guidance can cost literally thousand and hundreds of thousands of dollars.  In Mary’s case, she spent another $25,000 before she sought out the advice of an elder law attorney who helped her fix her application.  Another example of how difficult navigating through the long term care maze can be.

 That is not true for home based and other community Medicaid programs.  Most states limit the number of residents for whom those benefits will be provided, resulting in lengthy waiting lists.  If you have spent all your money down to qualify for Medicaid at home you could wind up on a waiting list.  And if you can’t wait because your health  is at risk then your only alternative is to go to a nursing home.  That is how the system “drives people to institutional care”.

 In recent years there has been increasing discussion about whether this “bias” is what the government really wants.  Isn’t it less expensive to administer care at home, which would then cost the state less money ?  That is a debate that you’ll hear more of as the federal and state governments struggle with budget deficits and trying to keep costs down.   We are already seeing, in the past 5 to 10 years, an increase in state spending on home and community based programs.  But some lawmakers fear what they call the “woodwork effect”.  If they expand these programs, giving people what they want, more will be encouraged to apply and thus, the costs will rise.  People will be “coming out of the woodworks”, so to speak.  (Makes you wonder how much the government really cares.)

 That premise is debatable.  A 2009 University of California study found that expanding home based care programs saved states money in the long run.  There were additional “start up” costs but over time the additional expense paid for itself because, the study found, the cost of home care is cheaper than institutional care.

 As we see 77 million baby boomers starting to turn 65 the discussion will only intensify.  The long term care problem isn’t going away.  For more discussion on the issue check out a recent story on National Public Radio which you can find at http://www.npr.org/2010/12/10/131755491/home-care-might-be-cheaper-but-states-still-fear-it

 Medicaid rules require that the Medicaid recipient give his/her income to the nursing facility and Medicaid will then pay the rest up to the Medicaid reimbursement rate, that rate at which the State pays the nursing home.  If I apply for Medicaid in January but don’t receive  approval until July, I must give the nursing home my income each and every month starting in January.  John didn’t do that.  But it’s his reason why that is a lesson in why you don’t want to do it yourself.

 Mom was living in an apartment, paying rent.  When John met with the Medicaid caseworker, he says she suggested that he keep paying the rent on the apartment in case Mom wasn’t accepted on Medicaid and needed to go back home.  John understood that to mean that he should use Mom’s Social Security income to pay the rent, which is what he did.  Of course, he then didn’t have that income to give to the nursing home.  So when he received word of Medicaid’s approval he thought it was smooth sailing.  Except that Mom now owed the nursing home close to $15,000, her Social Security income for the past 6 months.

 He tried to explain to the nursing home that he followed exactly what Medicaid told him to do but the facility is demanding payment and is ready to file suit against his Mom and possibly John as the agent under the power of attorney.   His mistake is in relying on the state employee to guide him.  The employee either flat out gave him incorrect information or, in trying to be helpful and offering him advice outside the scope of her job, didn’t make it crystal clear.  In other words, while it might be a good idea to keep the apartment for a few months, the caseworker should have made it clear that payment of the rent cannot come from Mom’s income which absolutely had to go to the nursing home.  Either way, he took some bad advice and ended up in a whole lot of hot water that could have easily been avoided if he had just sought out the proper guidance.

 When we meet with clients who are well on their way to needing nursing home care or are already in a nursing facility Medicaid is starting to really come into focus for these folks. When we then look through their finances we so often find transactions that, if carried out with an understanding of the Medicaid rules, would have put them in a much better position.

 For example, I have written in this blog about the right way and the wrong way to pay for aides.  In the case of family members serving as home aides, typically there is no written agreement as to the amount of compensation or the scope of the work.  Without that agreement Medicaid views the transfers as gifts subject to a Medicaid penalty.  In some cases real estate or bank accounts have been transferred, or so the family thought.  Without a proper understanding of the Medicaid rules those transfers of assets out of the senior’s name actually are not transfers and, to the dismay of the family, are still subject to be spent down.

 When I tell clients this sometimes their response is, “can we create a written agreement memorializing all the care I provided to Mom for all these years?”  This typically involves “backdating” documents.  My answer is always an unequivocal “no”.  Back dating documents involves creating a document, such as a deed or a caregiver contract, and then making it appear that it was written and/or signed on an earlier date. 

Not only is it dishonest, it is also a federal criminal offense to falsify an application or documents in order to obtain Medicaid benefits.  This is known as Medicaid fraud and it caused an Ohio attorney to lose her license and be brought up on felony charges.  In her case, she back dated a deed 3 years to start the clock running on the Medicaid penalty. 

 That’s why it is so critical to understand the rules before you take a course of action.  And the only way to do that is to engage in planning with a qualified professional who understands the rules and can guide you accordingly.

 An interesting question, and one that could have a real impact on Mom’s financial well being.  That’s because, under community spouse resource allowance rules, Mom will be able to keep a maximum of $110,000 but has to spend down the balance of their $200,000 in assets before Medicaid will cover Dad’s care.  That’s not much to live on, especially if Mom lives another 10 years or more.

 Medicaid does exempt the German reparations money from income rules, meaning it isn’t counted as income for purposes of determining eligibility.  But, Dad has received over $200,000 from Germany over the course of his lifetime.  Can that money be treated as an exempt or non-countable asset under Medicaid rules?  If so, then Mom can keep the extra $200,000, which would go a long way towards easing her money worries.

 The problem for most recipients is that it isn’t easy to identify which assets are from the German pension because the reparations money wasn’t segregated.  After all, the average person isn’t thinking about needing Medicaid years into the future, nor does he/she know the intricacies and specifics of the Medicaid regulations.  And there isn’t a specific regulation in New Jersey that talks about German reparations anyway, just a federal regulation.  (The Medicaid program is governed by a hybrid of federal and state regulations.)

 What I did tell Jerry, however, is that if the money can be segregated and traced, there is a very good chance that the entire amount can be exempted.  That means we must document how much Dad received over his life, place that dollar amount in a separate account and when we apply for Medicaid explain that this is the “German reparations” account.   It might require some negotiation with the State but it is well worth the effort.  Mom was relieved when I told her this and we have begun to take steps to make it all happen.  Stay tuned.

 The question they are really asking is, “how will a gift affect my need for long term care”?  I find that, while most people I speak with completely misunderstand Medicaid, the primary government program that covers long term care, they do know generally that there is some penalty for transferring assets.  That penalty, which is really a confusing term, refers to a period of ineligibility for Medicaid, not a dollar fine of some sort.  The greater the amount of the transfer, the longer the penalty.  So, for example, if I transfer $100,000 to my children, in NJ the penalty would be 13.7 months.  In New York, depending on what area of the state you live in, that penalty could range from 9.5 months to 14.9 months.

 When I explain this, the listener will often have an “aha” moment.  “Can’t we transfer $10,000 per person?  Isn’t there some gift tax law that says so?”  Actually, that gift exclusion is up to $13,000 per person per year since it is indexed for inflation.  But, no, that isn’t true, sorry to say.  While there won’t be any gift tax, there most certainly is a “potential” Medicaid transfer penalty.  And it doesn’t matter what the gift is for.  And it doesn’t matter if you gave gifts of a similar nature in the past.  In other words, if you have established a gift giving pattern for years, that won’t be excluded from the watchful eyes of the State when it comes time to file for Medicaid.

 So, does that mean the answers is “no, I can’t make gifts?”  Not necessarily, but we will talk more about that next week and I’ll explain what I mean by “potential” penalty.

 Because Medicaid treats the married couple as one unit, their assets are combined for purposes of determining Bob’s eligibility.  The home is an exempt asset, as long as the healthy spouse continues to live there.  The solution then seems clear.  Transfer Bob’s interest in the home to Mary.  After all, that’s what they had decided upon before Bob’s tragic mishap.  But, hold on a minute.

Bob had agreed to give the house to Mary because he had more earning potential.  This was a way to even things up.  But, that isn’t the case anymore.  Bob can’t work and doctors don’t know if he’ll ever again be able to earn a living.  If not, then can he really afford to give Mary the entire home, leaving him with literally nothing?   If he is able to leave the nursing facility where will he go and how will he pay for it?

There is also the matter of who can make decisions for Bob.  Right now it is not clear whether he has capacity.  He never executed a power of attorney so the only option is a guardianship, but, again, who is going to be the guardian?  We probably would look to the spouse first, but Mary was about to divorce Bob.  That doesn’t automatically eliminate her as an option but a court is certain to question whether she can act in his best interest.  Their only child is in the military overseas and there doesn’t appear to be any other family.  Maybe a court appointed guardian is appropriate here.

So then what happens to the home?  While Mary doesn’t want to abandon Bob in time of need she is also concerned about her future.  There may be a solution.  Bob can qualify for Medicaid if Mary remains in the home but Medicaid rules require that Bob’s name be removed from the deed.  That should be fine for Mary but someone has to protect Bob’s interest. 

Mary still wants to proceed with the divorce and she feels that the agreement they had should remain in place.  The question then is whether Bob wants to change the agreement.  Bob didn’t consult an attorney when he and Mary reached their agreement.  He didn’t think he needed one, nor did he want the expense.  Now that his mental capacity is questionable, however, he needs proper legal advice, especially if he must transfer his interest in the home to Mary.  Will that be permanent or just temporary?  Mary and Bob may disagree on that.  

And that’s what makes this so complicated.  Mary and Bob are still interconnected in so many ways.  They need to work together to reach the best result for both of them.  Not what either of them planned for, but when a medical catastrophe hits long term care issues will radically change anyone’s life.

             Probably 20 years ago Bob would not have survived but advances in medical science saved his life.  However, Bob remained in a coma for several weeks.  After regaining consciousness, he could not speak and had limited movement of his arms and legs.  Bob was transferred to a rehab facility where he began intensive therapy.  It is too soon to tell the extent of his recovery or if he will need to remain in a nursing facility for a lengthy period of time.

             Meanwhile, Mary now has a dilemma.  She is still married to Bob.  The nursing facility is pressing her about how she will pay for his care if he needs to remain there.  Emotionally, she is torn.  She and Bob have agreed to a divorce, although it’s not final yet.  But, she also knows that he has no family, other than their son, but, again, he is overseas.  She is also concerned about finances.  She doesn’t have the funds to pay for nursing care at $10,000 per month. 

             To make it even more complicated, Bob never signed a power of attorney.  As Bob’s spouse, Mary is being looked upon as Bob’s decision maker, but legally she has no right to make those decisions.  But, beyond that, some of the answers to the questions on the financial side of things, may benefit her but maybe not Bob.  Since their intent, before the accident was to part ways, is she even in a position to act in Bob’s best interest?  If Bob needs Medicaid, the home can be protected for Mary as the healthy spouse.  But what happens when the couple isn’t really still “together”?  How does that change things?

             We’ll discuss those issues and more in next week’s post.

 Jane’s mom has been living at home with the assistance of Jane and some private aides.  Mom is now in her 90’s, her health is declining and she needs ever more assistance.  Jane called me because she is anticipating Mom’s money running out in a few months and Mom will probably need nursing home care.  As Jane explained, “I want to be prepared.”

 Jane told me that Mom is down to about $50,000 in assets.  I asked about transfers and that’s when she told me that 2 years ago Mom gave her a gift of $50,000.  I asked if she gave her other daughter, Mary, a gift as well .  Jane told me that Mary is well off, doesn’t need the money and that Mom wanted to “compensate” Jane for all the care she would be providing.

 Jane acted surprised when I told her that although she thought she was planning ahead she was actually too late and now, in what we call, “crisis mode”.  That’s because Mom’s gift makes her ineligible for Medicaid.  “But I’ve been providing care for Mom.   She’s really just paying me for care that, if I wasn’t providing, we would have to hire someone to do”, Jane exclaimed.

 I then related to her that the State doesn’t look at it that way.  In fact, I’ve had discussions with the State’s attorneys in which it is clear that, philosophically, they feel that families should provide care without compensation, that it is simply a case of hiding money.  In my view, that’s a simplistic and unrealistic way to look at it.  I see many cases where children stop working to care for aging parents.  They lose income that they need to support themselves.

 But, it doesn’t matter to Jane how things should be, just how they are. Mom could have transferred assets to her, but it had to be for fair value.  In other words, Mom and Jane needed to enter into a caregiver contract in which Mom paid Jane for care that, if not provided, she would have to pay an aide.  And, no, Jane can’t go back retroactively and sign that contract.  The State presumes Mom made a gift to Jane and that carries a Medicaid transfer penalty.  I told Jane that if Mom needs care she’ll either have to give the money back or pay for Mom’s care at the private pay nursing home rate for 7 months, the length of the penalty.

 Jane listened and then told me that she doesn’t have the money to give back, however, her sister, Mary does have the money.  “Shouldn’t she cover it since I have been taking care of Mom?”, she asked.   I told her that this could possibly be a solution but legally, Mary is under no obligation to do that.  

 So, where does that leave Jane?  In a predicament with no great solution.  But, again, one that could have been avoided with proper planning.

 I explained to Jim that the appeal process is a lengthy one.  A fair hearing must be scheduled before an administrative law judge at which evidence must be presented.  If the judge finds in Jim’s favor, the State can still reject the decision.  Another appeal before a Superior Court judge is next.  And given the inability to answer many questions because Dad has died, it makes Jim’s case a long shot at best.  In the meantime, someone has to pay the nursing home which is caring for Grandmom.  At a private pay rate of $10,000 per month the bill will quickly run up.

 I asked Jim about his dad’s estate.  “Dad has a house worth about $200,000”, he told me.  “We haven’t probated his will yet, but I am the executor named in the will”.  I advised Jim that negotiating with Medicaid to repay them out of Dad’s estate would be the best route to go at this point.  Because it will take time to sell the home, however, the State will likely want assurances that they will be repaid .  And the clock is running down on Grandmom’s Medicaid eligibility.  But, the best thing for Jim and his family is to keep Grandmom on Medicaid and in the facility where she has been for the last 18 months.

 There was a long pause.  Jim processed what I said.  He wasn’t happy but he recognized that this was his best option.  Had his dad sought advice before applying for Medicaid he would not have been left with this mess.  But I also told Jim that he should consider himself lucky.  At least his dad left assets with which to repay the State.  Without those assets who knows what would have happened.  Jim, or some other family member, would have had to step up and pay the bill, or be comfortable walking away from the problem entirely, leaving Grandmom with no one to look out for her well being.

 During the course of our conversation Jim told me that Dad had a joint bank account with Grandmom which Dad transferred to himself about a year before he applied for Medicaid.  The State apparently ran a check on Grandmom’s Social Security number and turned up the account.  Jim didn’t know for sure why it hadn’t been disclosed on the original application but to make things more complicated, Jim’s dad had recently died.  Jim told me he pleaded his case to the Medicaid caseworker.  “The account was always Dad’s and at some point he put Grandmom’s name on the account”, he said.  He then added, “Dad was Grandmom’s caregiver and so this was simply repayment for those services and other money he paid out of his own pocket for her care.”

 I patiently explained to Jim that he needs to back up those statements with documentation.  I asked him how much in receipts he could prove Dad spent.  “About $5000”, Jim replied.  “Well”, I said, “the other $45,000 is still subject to a Medicaid penalty for being a transfer for less than fair value.”  “You see”, I explained, the Medicaid system works differently than the criminal system.  In the criminal system you are innocent till proven guilty.  The Medicaid system views it the other way around.  If you can’t prove by written documentation how you spent the money than it will be treated as a penalty.”

 I could now hear the panic in Jim’s voice.  “The nursing home is calling us daily, demanding to know whether we are going to pay back the money”, he said.  “We’ve tried to talk to the Medicaid caseworker to no avail.  What do we do?  Will the nursing home kick Grandmom out?”

 Jim’s problem is a common one, made more complicated because Medicaid wrongly approved Grandmom’s application and now wants its money back and the one person who might have been able to provide the answers has died.  And I know what you may be thinking.  Just because the State made a mistake in approving the application in the first instance doesn’t mean they waive a right to get the money back.  Stay tuned next week for what I told Jim to do.

 Al, Betty and Carl were, in many respects, like a typical married couple living under one household.  They combined their income to pay many of the bills, holding a joint checking account from which they paid those expenses.  They also combined much of their investments and savings in joint accounts.  This included the home which was titled in all 3 of their names.  Everything worked out fine until Al’s health deteriorated to the point where he needed nursing home care.  That’s when Denise called.

 Al had spent down his retirement accounts in his name alone and some of the money in joint accounts but when Denise went to apply for Medicaid they asked for 5 years of financial records so the caseworker could determine where all of Al’s money went.  And that’s where she ran into a problem because, for so many years, Al, Betty and Carl had combined much of their assets.  So who’s to say what was Al’s, what was Betty’s and what was Carl’s?  Denise thought she could just divide by 3 but the caseworker questioned the transfers into and out of those accounts, suggesting that Al  owned more than 1/3 of these accounts.

 Therein lies the problem we see so often.  By combining their assets the 3 siblings had muddied the paper trail necessary to establish that Al had spent down all his assets. Why is this so important?  Because if Al is spending his money for Betty or Carl’s benefit, that is a transfer for less than fair value and Medicaid will impose a penalty – a period of ineligibility – for benefits.  This applies equally to Betty and Carl should they need Medicaid in the future.  We need to separate their assets and clearly establish that each is paying their expenses from their own assets.

 We were able to help Denise navigate through the Medicaid process and explain all transfers into and out of Al’s accounts – with some difficulty.  We also helped her separate Betty’s and Carl’s assets, so things will go a lot smoother if Betty or Carl needs nursing home care and Medicaid.  

 Oh, and what about Al’s ownership interest in the home, you may ask?  There is an exception in the Medicaid rules that permits the transfer of the home to a sibling who has an equitable interest.  That was no problem here since both Betty and Carl had owned and lived in the home as long as Al.

The answer is “absolutely not”.  As the cost of long term care increases and the population continues to age, two things become increasingly clear.  It is usually less expensive to receive long term care at home and most people prefer to receive their care at home.  Yet, when 24/7 care is necessary and you’ve run out of money, getting Medicaid to cover care at home has always been much harder than in a nursing home.   But that is starting to change.

In New Jersey we have several community waiver programs.  That’s what Medicaid calls programs that pay for long term care outside of a nursing home, in the community. It could be in a person’s own home or in an assisted living facility.  In 2006 then Governor Corzine signed a bill to enable Medicaid nursing home residents to return to the community  provided they are medically able to do so.  In 2009 what came to be known as the Global Options program was expanded to include several waiver programs.

So, what does this mean in plain English?  That if my spouse is in a nursing home on Medicaid he or she doesn’t have to stay there.  We must contact the nursing home social worker who will then assemble a team of nursing home staff and the resident’s family who will discuss whether and how that can be done while preserving the health and safety of the resident.

The financial eligibility requirements for Global Options are similar to those for institutional (nursing home) Medicaid although there is no option of coverage for those whose income exceeds the $2022 per month income cap.  However, Global Options can be a great option for many families struggling with the need for nursing home care now but who don’t want to give up on the possibility of bringing their loved one home at some point down the road.

 A big problem with this contract was the fact that it was a lump sum payment.  Daughter was paid $56,000 before she even performed a single hour of services.  Now, this was necessary in order to spend down to below $2000 for Mom to be under the asset limit.  And, every attempt was made to calculate an amount that was based on fair market rates.  In fact, the rate was at the low end of that scale. 

 However, there were other parts of the contract that the court found objectionable.  For example, the contract stated that the caregiver was not obligated to devote full time to care since Daughter had a career and family to attend to.  She would devote as much time as she could to providing care.  The contract anticipated the average amount of time would be 15 hours or more.  The contract also stated that the $56,000 due under the contract was not dependent on the exact amount of time Daughter worked and that if Mom canceled the contract Daughter would be paid under the assumption she had worked 15 hours per week.

 The court found the contract to be one-sided.  Daughter was not obligated to perform any minimum amount of services.  Her compensation was not tied to actual performance.  In the normal commercial transaction would anyone pay for something without being sure what they were going to receive?   And, although the court didn’t specifically mention it, I think the fact that Mom was in a nursing home and not at home receiving care may have also had something to do with it’s decision.  The nursing home was providing 24/7 care so what Daughter would provide in the way of services was even less certain.

 So, does this mean that a child can’t be paid for providing care to a parent?  Absolutely not.  But, the line between what works and what doesn’t isn’t a black and white one.  That’s why cases like this help us define it with a bit more clarity so that we, as elder law attorneys, can help our clients decide what the best course of action is in their particular situation, as we guide them through what we call the elder care journey.

Mom was 97 years old and in a nursing home.  Daughter entered into a caregiver contract with Mom to provide care and was paid the sum of $56,000.  This amount was based on daughter performing 15 hours a week at a rate of $25 per hour for 2.9 years, the life expectancy of a 97 year old.  The payment was made and within 5 years of that payment Mom applied for Medicaid.  The State denied her application, counting the $56,000 as a transfer for less than fair value, not a payment for fair value received.

We use life care contracts often in the cases in our office.  But, we also know that the State will scrutinize those contracts very closely because when the payments are going to family members the State assumes that these transfers are “for less than fair value”, what most people would call gifts.  They will then impose a penalty period, or period of ineligibility.

For example, the contract can’t be retroactive.  If I have been caring for Mom for the last 2 years and now we decide that it would be a good idea for her to pay me for that care, Medicaid will flag that transfer.  I had no expectation that I would be paid when I performed the services so I can’t change that now.  There must be a contract in place going forward.  I also can’t be paid an outrageous sum of money.  Mom can pay me no more than what are fair market rates for the services I will perform. 

So why didn’t our 97 year old Mom get Medicaid?  We’ll explain that in next week’s post.

Some states define it narrowly to mean the probate estate, that is property that passes by way of the estate administration process.  But other states (New Jersey is one) have expanded that definition to include any property that belonged to the Medicaid recipient at the time of death, including jointly held property and assets held in trust.  Life insurance proceeds would not be included where there is a specific named beneficiary.  On the other hand they would be included if the estate is the beneficiary.

What if there aren’t enough assets in the estate to pay the lien and other expenses?  Medicaid gets a priority right after reasonable funeral expenses and costs of estate administration, along with taxes and ahead of other creditors and heirs.  The law requires the executor or administrator to contact the state to find out if any money is owed.

But, as with many laws and regulations, the estate recovery laws may not work so smoothly in practice.  Let’s say Dad is on Medicaid and Mom owns the home.  Dad dies but Mom is still alive.  No estate recovery yet.  The State must wait till she dies.  But, what if Mom lives another 5, 10 or 20 years?  The home may no longer be in Mom’s name.  If she sold it and spent the money on her own care then, no problem.  That’s what the State wants.  However, what if she transfers the home out of her name?  Can the State enforce a lien in that case?  And, how would they even know when to file a lien?  Maybe they would know if there is a will probated or an estate administration action.  But, if that’s not the case then most likely, the State won’t be aware of Mom’s death.  And there doesn’t appear to be any requirement to notify Medicaid of Mom’s death unless she too received Medicaid.

So, what would happen in that case?  Many of these questions may take time to answer as these different scenarios play out over a number of years.  Just another example of why it is so difficult to navigate the long term care system.

 The process by which this is done is called estate recovery, and as with most things Medicaid, that process differs greatly state to state.  First, let’s review the basics.  Estate recovery applies only to Medicaid benefits provided for services received after age 55.  The State will not seek immediate recovery as long as there is a surviving spouse or child under age 21, blind or permanently and totally disabled.  The key word is “immediate’.   After the spouse and/or child dies, reaches age 21 or is no longer disabled, as the case may be, the State will then attempt to recover assets from the deceased Medicaid beneficiary’s estate. 

 A common misconception is that the State has a lien when Medicaid starts to pay benefits.  In fact, Medicaid doesn’t place a lien on the home until after death.  It often can take months, or in the case above where there is a surviving spouse or qualifying child, that lien might not be filed for years.

 There are also other scenarios where the State may not seek estate recovery.  Under what is known as a hardship exception, if property in the estate is the sole source of income for one or more survivors and pursuing recovery would likely result in those individuals needing public assistance themselves, then the State may not go after assets.  Also, if a family member was living in the home before the Medicaid beneficiary died, and continues to make it his/her primary residence then the State will record a lien but wait until the property is either sold or the family member dies or moves out, before seeking repayment.

 Those are the basics.  But, you’ve probably got a whole bunch of questions about how the whole process works.  For example, what exactly is counted as part of the ‘estate”?  We’ll tackle that one next week.

            Julie called us regarding her dad, who was in the hospital, ready to be transferred to a nursing home.  She had picked out a nursing home, applied for Medicaid and thought she had a plan in place.  Dad would move to the nursing home, private pay for a few months and then move over to Medicaid.  Then she got a letter from Medicaid stating that Dad had made a number of asset transfers which would result in his being ineligible for benefits.  The caseworker requested copies of checks and documents explaining deposits and withdrawals before he could tell Julie how long her dad’s penalty would be.  Julie called us in desperation.

            Now, I have to tell you, that some of the most challenging cases we get are those where we haven’t done the planning for families or even  filed the Medicaid application but, rather, are called in to finish a process that has suddenly been derailed.  And that, unfortunately, was what happened to Julie.  The nursing home she lined up for Dad learned of the Medicaid problems and said she needed to get them straightened out before they could admit him.  We took a look at the details and here is what we discovered.

            Dad had transferred his home to his children 10 years earlier.  That wasn’t the problem.  However, Dad was still living there and paying much of the expenses of the home, but doing so by way of reimbursing Julie who was actually paying the taxes, insurance, etc.  Additionally, Dad had been giving money to his children over the past several years, hardly unusual, but, transfers subject to a penalty, nonetheless.  Finally, Julie had been using Dad’s bank account to deposit some of her own funds.  She did this out of convenience but didn’t realize what a problem it would cause when Medicaid counted it as Dad’s.

            The questionable transfers totaled almost $75,000, a 10 month Medicaid penalty if we couldn’t prove otherwise.  So, we rolled up our sleeves and got to work.  We learned that Julie’s brother Bill was disabled.  Transfers to a disabled child are exempt from the transfer rules (something Julie didn’t know and which never came up at the Medicaid interview).  That reduced the questionable transfers to $50,000. 

            We then painstakingly went through the nearly four years of account statements  and had Julie provide us with as much information as possible to piece together the entire picture of money going in and money going out of Dad’s account.  We separated what was actually Julie’s and proved it to Medicaid.  Most of the payments that Dad made relating to the home he no longer owned we also were able to get Medicaid to treat as reasonable home expenses. 

            All this helped to reduce the $75,000 down to $20,000, resulting in a 3 month penalty.  Dad entered the nursing home, the family private paid for 3 months and then Medicaid kicked in.  The net savings to the family by knocking 7 months off the penalty was $70,000. Not knowing the Medicaid ins and outs, Julie would have never been able to do it on her own.  Yes, she filled out the application.  But, it was the rest of the complicated process she needed our help with.

             While Medicare, for example, is a federal program governed by rules established by Congress, Medicaid, on the other hand, is a mix of federal and state law.  It is that attempted blend of two governmental systems and sets of laws and regulations that makes the Medicaid system so uncertain for those trying to tap into it.  The issue of civil unions is a perfect example.

             New Jersey’s law states that civil union couples are entitled to the same benefits (as well as held to the same set of responsibilities) as heterosexual spouses, including Medicaid.  But, it’s not that simple.  Of course, with the government it never is.  That’s because there is a certain federal law known as the Defense of Marriage Act which says that, in interpreting any act of Congress the term marriage means only a legal union between a man and a woman.  This presents a problem for states recognizing civil unions because they get federal money to support their Medicaid programs.  So, they may be violating federal law and possibly lose federal funding by treating civil union partners as married for Medicaid purposes.  At least that’s what the federal agency overseeing Medicare and Medicaid has indicated on at least one occasion.  On the other hand, the New Jersey’s civil union law seems quite clear that civil union couples are to be treated as married for purposes of Medicaid.

             Where does that leave things?  We’ll probably have to battle this one out in court.  And, by the way, it isn’t necessarily the case that treating civil union partners as married is best when it comes to Medicaid.  As readers of this blog are aware each case must be examined individually.  In some instances it would be advantageous to be married, in others it wouldn’t.  But, the question does raise some interesting issues and is just another example of why the long term care system is so impossibly confusing to navigate alone.

 Certainly, Mom is getting a benefit.  She is helping others in need, but that is not exactly something we can put a monetary value on.  The same answer would seem to be the case for contributions to Mary’s favorite religious our civic charities.  But what if she makes a small gift of, say, $100?  Will that cause a penalty?

 Applying the letter of the Medicaid rule as written, any transfer for less than fair value, no matter how small, will trigger a penalty.  And think about it.  If the State goes through 5 years of your financial records (that’s the 5 year lookback), how many of these charitable contributions and other transfers might it find?  If we total them up it might turn out to be a pretty big number, causing a few months of ineligibility or more.  And, don’t you think, if the State can delay paying for Mom’s nursing home care, at a time when our incoming New Jersey governor, Chris Christie, has declared the State to be nearly bankrupt, it would do so?

 On the other hand, if Mom’s charitable contributions are small, infrequent and far enough in advance of her application for Medicaid, they most likely won’t cause a problem.  But, that’s what makes the whole long term care system so frustrating.  It’s the uncertainty, not knowing what you can or can’t do.  That’s why it is so important to seek advice from a trusted advisor first  You just don’t want to take the wrong step.  In Mary’s case I told her a small gift would be OK.  It didn’t make me feel good having to tell her that the government laws and rules in this case discourage charitable giving.  But that’s a whole separate discussion for another time.

 First of all, you need to understand some basics about how Medicaid works.  In order to qualify, one must spend down assets first.  When essentially all your money is gone, (in the case of a married couple the healthy spouse gets to keep a small amount) then Medicaid will kick in.  However, if you have made transfers for less than fair value, what most people would call gifts, then you won’t be eligible for Medicaid.  The greater those transfers the longer your ineligibility period.

 And before the government will step in and pay for your care it will insist that you show it how you spent your money.  And by “show”, I mean on paper, by producing each and every financial statement dating back what will soon be 5 years from the date you apply for benefits.  So, this is where my reference to the criminal system comes in.  Everyone knows from grade school the concept of “innocent until proven guilty”.  With Medicaid, however, that concept is turned around.  You are “guilty” until proven “innocent” when it comes to transfers for less than fair value.  By that, I mean to say, that if you can’t prove what you have spent your money on, then Medicaid will consider it a transfer for less than fair value, a “gift” in essence, causing a denial of benefits.

 Let’s then, go back to John’s parents.  As we know, cash is hard to trace.  Think about it.  If Mom and Dad have been withdrawing cash for their spending needs how hard is it going to be to prove, going back as many as 5 years, what they spent that money on.   All we’ll see on their bank statements are cash withdrawals.  No explanations.   Who keeps all those receipts?  Hardly anyone.   But that’s what Mom and Dad need to do in order to preserve their eligibility for government benefits.

 So how do they avoid this potentially catastrophic result?  They need to better prepare themselves for the possibility of needing long term care, well before they need it time and consult with a knowledgeable elder law attorney who can tell them how to spend down their assets and establish a clear paper trail, while preserving their ability to qualify for government benefits.

 In the case of a married couple, Medicaid considers the assets of both the healthy and ill spouse in determining eligibility.  The questions then becomes “what point in time do we value their assets?”  That is what is called the “snapshot date”.  Medicaid values the assets as of the first day of the first month of continuous institutionalization.  Bill told me that he was close to settling Mary’s case and asked whether pushing the case to settle would be helpful. 

I explained that if Mary receives the settlement proceeds before John is approved for Medicaid  it would count as part of the spend down and she would only be able to keep, at most, one-half of the money.   We don’t want the case to settle until after John gets Medicaid because at that point there is a “division of assets”.  Mary keeps the $50,000 of assets that they have left after the spend down and whatever other assets she receives after that date.

 Once Bill understood the best sequence of events he recommended that Mary contact us to guide her on how to spend down and to handle the Medicaid application.  And that’s what we did.  In a few months time, John received Medicaid, Mary kept $50,000 of their savings and then Bill settled the case, providing Mary with $150,000 of additional funds to support her, money she especially needs since she most of John’s income must be paid to the nursing home.  So when we talk about timing being everything, in Mary’s case it meant, an extra $90,000 in her pocket.

 Jane definitely had a problem.  While Medicaid doesn’t “take” the home, when Dad starts to receive Medicaid benefits the State runs a tab, so to speak.  That tab comes due when he dies, under what is called “estate recovery”, and the State will get paid first when the home is sold because Jane didn’t have a mortgage to protect her $240,000 loan to Dad.  So each month that Dad receives Medicaid benefits is money that Jane will lose, because the house is only worth $250,000.  I told Jane not to worry.  I had a solution, but we had to work quickly before we filed a Medicaid application.  Here’s what we did.

 Jane had no problem documenting the payments on Dad’s behalf.  The nursing facility provided us with a payment history as well.  We first had Jane and Dad enter into a loan agreement backed by a mortgage which we recorded on Dad’s home.  A realtor provided us with documentation showing that Jane had listed Dad’s home for sale for about a year and had to continually lower the asking price which was now $250,000.  We needed this to establish the fair market value.

 Jane then entered into a contract to purchase Dad’s home for $250,000.  We represented Dad and Jane hired her own attorney.  It had to be, what attorneys refer to as an “arm’s length transaction” with all the usual realty transfer fees and recording costs.  Jane’s payment for the home was the $240,000 she paid to the nursing home plus Dad’s closing costs (which she paid).

 Finally, we applied for Medicaid, disclosing all the above transactions.  Medicaid definitely examined it closely.  But we had the documentation to back everything up.  This was not a case of Dad gifting Jane $250,000.  Jane had paid full value for the home and Dad had used the money to pay for his care.  In the end, however, I am proud to say that Medicaid approved our application and Jane did get back her $240,000.  And the State can’t be unhappy either, since Dad used every last dollar for his care before reaching out for government benefits.

 Jane was lucky but I don’t recommend waiting until she did to reach out for help.  Had she handled the Medicaid application herself, she likely would have lost tens of thousands of dollars, and possibly all of the money she spent.  And since Jane, herself, is 65, that’s money she’ll need for her own care needs in the not too distant future.

A federal court last week finally weighed in on a particular exception to the Medicaid transfer rules that the State of New Jersey has, for some time, misinterpreted.  A transfer of assets from parent to child, if made within 5 years of the date of application for Medicaid benefits, carries a Medicaid penalty, but there are some exceptions to that general rule.  If the transfer is made to a child, or to a trust for the benefit of the disabled child, then that transfer is not subject to a Medicaid penalty.  The State has for as long as I can remember, insisted that this exception applies only if the transfer is to a trust for the sole benefit of the disabled child.

Now, if you are not familiar with the ins and outs of the Medicaid laws, and were told that your mother is ineligible for this reason, what would you do?  Probably go home and wait till the Medicaid penalty expires, not knowing any better.  My staff has reported back to me on some of our cases the same thing.  I then have to go back to the federal law and state regulations interpreting that law to find the exact sections that support our claim.  Sometimes that is enough to resolve the issue, but other times, such as in the case of Sorber v. Velez, the case decided last week, the State doesn’t budge and we, as elder law attorneys, have to resort to the court system to settle the dispute.  In the Sorber case, the issue came down, in part, to the type of grammar lesson you might remember from elementary school about the proper placement of a comma. The State’s interpretation didn’t seem logical and the court agreed.

One of my staff asked me the other day why the State would take a position that seems so farfetched.  The answer, I think, can be found by looking at the bigger picture of what is playing out in this country.  The government doesn’t have enough money to fund the programs and services it currently has.  Looking at what’s coming, the number of people facing a long term care crisis will continue to increase in the next 20 years as 77 million baby boomers reach senior status.  So, you can expect the State to continue to interpret eligibility standards very strictly.  And sometimes they’ll get it completely wrong.  That’s why the ‘do it yourself’ approach is dangerous.  You could be losing valuable benefits and without the assistance of someone with knowledge of the laws you wouldn’t even know it.   The government wants to push you to the back of the line.   Make sure you protect yourself and fight to maintain your spot at the front .

            If you’re a sports fan, by now you know all about seat licenses.  Both the Giants and Jets are selling season tickets in a new way.  Before you can have the privilege of buying a game ticket you must pay a fee, called a seat license.  The better the seat, the higher the fee.  Joe told me that the license for his family’s seats cost Dad $60,000.  So, what do you think will happen if Dad just transfers his seats and later applies for Medicaid?

            Certainly there is no mention of NFL seat licenses in any state Medicaid regulations.  But, doesn’t the license have a value?  Teams are telling their fans that they can resell the license, that it’s really an investment.  It isn’t a stretch, then, for the State to treat the transfer of the license from one generation to another as a transfer for less than fair value subject to a Medicaid penalty.  Especially since the State is facing huge budget deficits and can ill afford to pay out benefits to huge numbers of its residents.  So, do I think that the State will let it go?  Not likely.

            Back to Joe and his parents.  I told him that any transfer of the seat license had to be for fair value.  But, that’s easier said than done.  No one really knows what resale value they have since the licenses are brand new and can’t even be resold yet.  There is a lesson to be learned though.  Families with season ticket plans may want to consider transferring them to the next generation while healthy.  Just another reason it’s a good idea to plan for long term care, and if you’re a Jet fan like me, you don’t want to miss out on the possibility of a Super Bowl trip.  It’s gotta happen one of these years ‘ right?

In New Jersey, Medicaid says that adding someone else’s name to a bank account or mutual fund does not transfer the ownership on that account. In other words, if Mrs. Jones had a bank account with $50,000 and she added her daughter Mary’s name to the account, the State would say that she did so for convenience purposes. The entire account still belongs to Mrs. Jones. So even though Mary’s name has been added, the practical effect, from a Medicaid standpoint, is that there has been no gift and the entire account still belongs to Mrs. Jones.

This is true whether we are talking about bank accounts, certificates of deposit, savings bonds, mutual funds or any other liquid asset. The law says there is no gift until, and unless, the child actually takes the money out of the account. Using this same example, if Mrs. Jones added Mary’s name to the account three years ago, there has been no gift made, even if Mary’s Social Security number is used for the account and she pays the taxes on all income. If Mary later takes some money out of the account, and moves it into her own name, then the gift is made at that point in time.

This general rule is not true where real estate is concerned. That’s because if someone’s name is added to real estate, at the time the deed is signed and recorded, then a completed gift has been made.  For instance, let’s say that Mrs. Thompson is a widow and she owns a house valued at $200,000. If she adds her son’s name to the house and then has the deed recorded, at that time she has made a completed gift. A gift in the amount of $100,000 would cause her to be ineligible for Medicaid for 13 months. At the end of that time, however, the Medicaid ineligibility would cease… and one-half of the house’s value would be protected.

Whether or not it makes sense to add someone’s name to real estate or financial assets depends upon the facts and circumstances of each particular case.  Be sure to seek the advice of a competent elder law attorney before proceeding.

 What Joe has done is make a very common mistake by confusing the annual gift tax exclusion with the Medicaid rules.  So let’s run through the basics and clear it up.  Gift tax is paid when you make a sizable gift to someone who isn’t your spouse.  One of the purposes of the gift tax law is to protect the estate tax.  For example, if I know that my estate of $2,000,000 will be taxed when I die, then why don’t I just transfer all my assets to my loved ones shortly before I die.  The gift tax eliminates this estate tax avoidance strategy.

A certain amount, however, is exempt from the gift tax.  There is a lifetime exclusion of $1,000,000, meaning I can transfer up to that amount, in one lump sum or in smaller increments, over my lifetime.  In addition, I can gift up to $13,000 per person per year (everyone remembers it as $10,000, but several years back an inflation adjustment was added so the number now is $13,000).  Yes, there is no gift tax owed when you make that gift but it does carry a Medicaid transfer penalty.

 How so?  Because the gift tax rules have nothing to do with the Medicaid rules.  On  the one hand, the government is telling us its OK to gift some amount of money without paying tax, but only up to a point.  On the other hand, if we need nursing home care the government doesn’t want to pay for that care unless we spend all of our own money on that care first.

 Every $13,000 gift, therefore, carries a Medicaid transfer penalty, a period during which you are not eligible for  Medicaid.  That penalty, expressed in months, is calculated by taking the transfer for less than fair value (the gift, as we have been discussing) and dividing by the average monthly cost of nursing home care.  This number is set by each state and in some states it varies by region.  Here in New Jersey that number right now is $7282.  This means every $13,000 tax free gift carries a Medicaid penalty of almost 2 months.

 Now, does that mean that you should never make gifts?  No, not necessarily.  It just means that in today’s increasingly complicated world, you have to understand that making those gifts can result in long term consequences, which you may not recognize until it’s too late.  That’s why a carefully thought out long term care plan is critical and getting the proper advice and guidance well before that care is needed is always the best approach.

Jane hires a home health aide at $700 per week cash, or $3000 per month.  She keeps the aide 3 years until her funds run out and now needs round the clock care.  A nursing home becomes the only option. 

She applies for Medicaid but is told, ‘Sorry, you’re not eligible for 15 months.  You’ll have to private pay until then.’   Of course, Jane has no more money.  She’ll have to come up with the funds some other way, perhaps from family members. But at $9000 per month or more that may not be possible.  How did Jane get into this mess?  Because Medicaid treated her payments to the aide ($108,000) as transfers subject to a penalty.

Qualifying for Medicaid requires spending down assets below $2000.  Transferring assets may cause Medicaid ineligibility if you do not receive something of equal value back.  Medicaid calls this a ‘penalty’.  However, and this is key, you must prove to Medicaid that assets transferred are not subject to a penalty.   

If you pay the aide cash (or by check) and don’t keep proper records Medicaid will assess a penalty.  The penalty is calculated by dividing the transferred amount by the average cost of nursing home care.  When one applies for Medicaid there is now a 5 year lookback period, meaning Medicaid will look back 5 years from the date of the application to find these transfers.  They will add together all the transfers made during that time.  The penalty will begin when all other assets have been spent down and the individual enters a nursing home and applies for Medicaid. 

Of course, that is exactly the time when you have no more money.  The State presumes you gifted the money and so will tell you to get it back, use it and then, after it’s gone to come back and they will pay for your care.  But, you didn’t gift the money so you can’t get it back.

So,how can you avoid Jane’s problem?  By keeping records to prove the payments were not gifts and not paying cash which is difficult to trace.  It is also a good idea to generate detailed invoices of the services which you purchased.    Another, perhaps better, solution is to hire a home health agency that will supply the aide.  It will cost more than hiring an aide directly but your contract with the agency will insure that Medicaid can never challenge the payments as gifts.  And, in the long run it may cost you less because you won’t be stuck with a Medicaid penalty.

A common scenario that I am seeing with increasing frequency is the following fact pattern.  Dad owns a home but not much else.  He needs nursing home care but can’t get a mortgage to tap into the equity to pay for the care.  The home is listed for sale but in today’s market, homes aren’t moving quickly.  So the children pay the nursing home bill and the cost to maintain the home, with the expectation that when they sell the home they will repay themselves.  The family doesn’t have any written documentation to reflect this arrangement and that’s where the problem starts.

 So, the children pay for Dad’s care and expenses.  Maybe they pay by credit card,  sometimes, by check.  Some expenses, such as lawn care, they pay cash.  Often times they don’t keep records to back up the expenses and if more than one child is helping out no one is keeping a running tally of who is paying what.  ‘We’ll figure it all out later’, they say.  Finally, the house is sold.  Dad gets $200,000 from the sale.  The kids estimate that they have spent $150,000 on Dad’s behalf and take that amount to repay themselves.  Dad then spends down the rest for his care.

 Now, it’s time to file a Medicaid application.  As part of the application Dad must produce financial records for each account he had in existence, going back to February, 2006 (soon to be a 5 year lookback).  The State will examine the home sale and discover the transfer from Dad to children.  It will treat the transfer as subject to a Medicaid penalty, unless the children can prove the money was repayment for goods or services that Dad received.  And that proof must be by documentary evidence.   Dad won’t be eligible for benefits for a year or more, depending on the state he lives in.  ‘Bring the money back and spend it down’, the State will say.  So what can this family do?

 There are a few options.  Some involve applying for Medicaid immediately.  Others involve family members paying for Dad’s care and then getting reimbursed later.  However, the one common element to each option is that there is a written agreement in the form of a note and a mortgage on Dad’s home to secure the loan. The paper trail is the key.  Without it the children will never be able to prove that the transfer was for value, and won’t be able to recoup the money, in some cases hundreds of thousands of dollars, advanced for their parent’s care.

 And if you have been a frequent reader of this blog you know that the earlier in the process you seek proper advice and guidance the better off you are.  You don’t want to wait until filing the application to find all this out because, of course, by then it is too late.

 John had been in an assisted living facility for several years. His wife, Mary was living at home and private paying for his care.  She had numerous conversations with the assisted living facility about Medicaid and was told that qualifying wouldn’t be a problem and that John could remain in the facility on Medicaid.  Pretty simple, or so it seemed.

 Mary began the long winding journey that we have come to know as the Medicaid application process.  Similar to the couple I wrote about in March, Mary did not understand the timing aspect of Medicaid, that she had to reach a target level of assets before John could qualify and that each month she missed that target was a lost month, never to be recaptured.  This was of paramount importance to her, since she is several years younger than John and will need to preserve as much as she can to live on after he is gone.

 The Medicaid application process dragged on as the caseworker asked for each follow up piece of documentation, all very confusing to Mary.  She finally sought assistance and we were able to help her finally achieve financial eligibility.  At that point Medicaid sent a nurse out to the facility to evaluate John medically, to determine that he needed nursing home care.  Mission accomplished.  John received the go ahead.  Now, all that remained was for the facility to complete its required form, indicating that it would OK John for a Medicaid slot.  Imagine the surprise when we received word of Medicaid’s denial.

 When we followed up, we learned that the facility refused to make a Medicaid slot available, resulting in the denial, despite the promises made to John and Mary.  We were told, however, by Medicaid that John could still be approved if the facility simply changes its stance and agrees to make a slot available.

 John and Mary’s experience is a cautionary tale for families.  Qualifying for Medicaid is anything but simple, especially so when it comes to assisted living.  It requires the cooperation of families and the facilities caring for their loved one.  It is confusing and time consuming and best not handled without the guidance of a qualified professional, such as an elder law attorney.  And keep in mind that much of this is state specific.  While the long term care options are complicated no matter where you live, each state has its own system and set of laws so make sure you consult with someone familiar with the process in the state where your loved one lives.

 The ins and outs of Medicaid are complex and confusing.  Another example which we recently addressed in our office highlights that point.  Mr. Jones was in a nursing home and we were applying for institutional Medicaid.  Under Medicaid rules the applicant needs to be below $2000 in assets as of the first moment of the first day of the month in order to qualify for Medicaid for that month.  We tell clients that they must be below this number as of the last day of the preceding month.

 Spending down means making transfers for value, that is to say, a purchase of goods or services for fair or equal value.  Very often this spend down occurs right up until the last day of the month.  So, what happens if I write a check to pay a bill on the 31st of the month but the person or business I give it to doesn’t cash it until the next month?  As long as it is dated the 31st (or earlier) and you give it to that person or business no later than the 31st, then it is counted as being spent even though it will not clear your checking account until the next month.

 Now, this all sounds very trivial, and I would agree with you, but don’t think for a minute that the State will overlook these transactions.  They won’t.  They scrutinize them very carefully.  If you’re over the Medicaid limit by a dollar, you’re over for that month and have to wait until the next month.  (See above)

 Let’s go back to Mr. Jones.  His son was spending down Dad’s assets.  He had credit card, rent and utility bills to pay.  We spoke on the 31st and Son confirmed that Dad’s 3 accounts totaled $1200 after accounting for payments.  Now, we didn’t have statements yet for one of the accounts so we had to rely on Son’s statement.  We filed the application and several weeks went by before we heard from the Medicaid office.  They wanted missing statements from one of the accounts at an out of state bank.  With some difficulty (because the bank at first balked at accepting the power of attorney Dad had executed in Son’s favor) we obtained the statements but were surprised to learn that some of the bills were not paid by check, but rather by electronic transfer on the first of the month.  So, while Son kept telling us that Dad’s accounts totaled $1200 that was not, in fact, true.  He was counting these electronic debits which Medicaid would not.

 As it turned out, we still were under $2000 in Mr. Jones’ case, but not by much.  (We tell clients we want them to be well below $2000 to leave room for just these types of surprises.)  The next case may not work out so favorably.  Just another example of how tricky the Medicaid rules really are and why you don’t want to go it alone.

Two years ago Mary contacted me concerning her mom who was living in an assisted living facility with an aide that she and her sisters were paying cash.  Mom had transferred her assets to her 3 daughters.  They had begun to spend some of the money on Mom’s care but had also opened and closed accounts, moving, combining and commingling assets.  Over time it would have been very difficult to follow the paper trail and establish with Medicaid that Mom’s money had been spent for her care, and not gifted to the children.  Unlike last week’s family, however, Mary reached out to me within a few months after the initial transfers and, as it turns out, almost 2 years before we applied for Medicaid.

We quickly counseled Mary that the assets had to be returned, and, thankfully, although some had been spent on Mom’s care, she and her sisters still had possession of the balance.  We then guided Mary on the records that she needed to obtain in preparation for the anticipated Medicaid application.  While she still employed the aides we were able to prepare invoices and documentation showing that the cash withdrawals were not gifts, but payment for services, including a statement from the facility.  Mary had been paying the facility bill on her credit card and then taking money from Mom’s account (which was titled in Mary’s name).  We had her go back through her records and copy the credit card bills with those charges and match up payments back to her from ‘Mom’s account’.  We also counseled her on a better way to make those payments.

Finally, Mary and her sisters had moved money from one account to another, for convenience, a better interest rate or to keep FDIC insurance coverage.  Without recognizing it, however, they were muddying the paper trail.  You see, Medicaid requires as many as 5 years of financial records to show how money has been spent.  Mary and her sisters didn’t realize the problems they were creating. We painstakingly had to document all the transfers from one account to another and transfers in and out of each account.

As I said, this was a success story.  2 months ago we applied for Medicaid.  We provided Medicaid with details of each transaction, backed by supporting documentation.  Last week the family received Medicaid approval without a hitch.  Every dollar had been accounted for and we achieved a smooth transition to Medicaid with no ineligibility period.  Financially, the family can rest easy that Mom’s care is paid for and the nursing facility, which receives those Medicaid benefits, is happy that their resident went from private pay to Medicaid without interruption of payment.  An example of the way things can work if you have someone with knowledge guiding you through the process.

Last week I received a call with an all too common story. Mom had recently died. Dad moved in with Daughter, Jane and the plan was for him to live there the rest of his life. At the same time, Dad gifted $150,000 to Jane and her brother, Joe. "It’s Dad’s money. He can do what he wants with it", she told me.

Well, I think you can guess what happened. Jane was unprepared for the reality of long term care. I could hear the stress in her voice as she described the deterioration of Dad’s mental and physical state, from the mood swings and erratic behavior to the declining personal hygiene and the inability to walk without assistance. His care needs were increasing and Jane was unable to handle the increased demands on her time while caring for her own young children.

"I just never expected this", she exclaimed."  I can’t do this anymore. I need to get Dad into a nursing home and he has $50,000 left.  What do I do?", she pleaded. I explained to her that once his money was spent down he could qualify for Medicaid, but she and Joe would need to return the $150,000. But here was the problem. Jane and Joe had already spent the money and, therefore, couldn’t return it. "Well’, I told her, "when Dad’s remaining $50,000 is spent down he still won’t be Medicaid eligible for another 4 years. That’s because the Medicaid penalty doesn’t start until he has less than $2000 to his name and he needs nursing home care.

"It’s so unfair," she cried. "The government is forcing me into poverty to pay for Dad’s care." I had to patiently explain to her that she and her brother did receive a substantial sum from Dad, money that should be spent for his own care before public funds could be tapped.  The sad truth, however, is that had the family consulted with an elder law attorney before the gifts were made, Dad could have transferred some assets but enough would have been preserved to cover the possibility that he would need long term care before Medicaid eligiblity.  Unfortunately, in Jane’s case I didn’t have any solution to her problem.  She would have to figure out how to care for her Dad or pay out of her own pocket until the Medicaid ineligibility period expired.  It didn’t have to turn out this way.  A cautionary tale for all.

Jane and John needed to spend their assets down to $77,000 before qualifying John for benefits. Jane was distraught at the idea of having to spend her life savings ‘ what about her own health care costs?  A social worker at the hospital recommended that Jane contact an elder law attorney to see if there were ways they could preserve more of their assets. When we met Jane we explained that there was a way she would be able to increase the amount of assets she is entitled to keep. Here is how.

Jane and John owned their home free and clear, with  no mortgage. It was no problem for them to take a home equity line of credit in the amount of $100,000, since their home was worth approximately $400,000. Jane immediately borrowed $70,000 against the line, before John entered the nursing home. By doing so, she increased the amount of assets at the snapshot date from $170,000 to $220,000.  This meant that Jane could keep $109,540 and the couple would need to spend the remaining assets down to $2000.  In other words, the couple would have to spend $110,460 before John could qualify for nursing home benefits.

 After John entered the nursing home we instructed Jane to repay the line of credit leaving another $40,440 to spend down.  Paying the nursing home and other bills quickly accomplished that and we were able to get John Medicaid.  The end result was that Jane kept nearly $110,000 of their combined $150,000, much needed money considering she was also going to lose some of John’s income and could very well outlive John by 5 years or more.

 A word of caution.  This scenario is fact specific to Jane and John and should not be considered without proper counseling. The bottom line, however, is that before you start spending down, you should seek advice from someone who knows the Medicaid laws.

Actually, yes.   While she will have to spend down there are ways to spend that will be more beneficial for Mary.  Let’s go through a list of some of them.  At the top of the list is setting up an irrevocable burial fund to pay for both of their funerals.  Better to do that now.  Otherwise she’ll have to take that expense out of what Medicaid says she can keep.  Other strategies focus on exempt assets, the house and a car.  Mary will keep the house and one car.  Of the $75,000 that she has to spend down she could fix up the house.  That might include replacing an old cooling or heating system, installing new windows and/or siding and remodeling the interior.  If she makes improvements that enhance the value of the home should she decide to sell that will result in more money for her to live on.

How about her car?  Mary has a 10 year old car.  It is better for her to purchase a new car as part of the spend down.  Or perhaps she has a car loan that she is paying off over time.  Paying it off before applying for Medicaid may be the better alternative.  That applies for other debt, such as credit cards or other installment loans.  Finally, Mary ought to look at anticipated expenses.  For example, if she or Joe needs dental work now may be the time to do it.

Some of the spend down will need to go to the nursing home to pay for the cost of care at its private pay rate so it is important to determine what amount will be necessary to get Joe into a quality facility.  Knowing that, they can then work backwards to determine what they have left to spend on the other items.  Additionally, if Joe is not yet in the hospital or nursing home it may be possible for Mary to keep more than $75,000 by taking a home equity line of credit (more on that in next week’s post).

A word of caution, however.  One size does not fit all.  What is best for one person may not be right for another.  Medicaid rules are very complicated and quite technical.  Before taking any action it is best to consult with an elder law attorney well versed in Medicaid law.  But, if done properly, Mary can preserve more than the 50% of assets that Medicaid laws say she can keep.  This is especially important, given the possibility that Mary may outlive Joe by 5 or 10 years or more.

 John called concerning his father.  Dad owns a home in which he lives.  Home health aides come into the home to assist Dad but as his health deteriorates and he needs increased care John believes that Dad will very soon need to move to a nursing facility.  Now, here is where it gets interesting.

 Dad took a reverse mortgage for $300,000 and he took it in a lump sum.  John’s plan was to invest the money in the market, get a decent rate of return that would help meet Dad’s expenses.  Well, we know what has happened in the past year.  The stock market has headed south.  Dad’s investment headed south too.  He lost roughly half of his investment.  That’s bad enough.  But here is the problem.  John transferred the money to an account in his name.  Not because he intended to keep it, but because it was just easier to manage the funds that way.

 When he did that, however, he caused a Medicaid transfer penalty.  In New Jersey that penalty is approximately 3 and  years.  So what happens when Dad sells his home and uses the sale proceeds (less the amount he pays back to the bank) for his nursing home care?  He will be ineligible for Medicaid unless John transfers back the money.  Except that he doesn’t have all of it.

 I know.  You’re thinking, ‘Will Medicaid really deny Dad’s application if John can show that the loss in value occurred in the market, and that he didn’t take the money?’  I don’t know.  Maybe, maybe not.  You see, we are living in unusual times.  Many states are struggling with budget deficits.  Medicaid is one of the biggest, if not the biggest, program for most states.  If they don’t have the money to fund these programs I can certainly see them applying the Medicaid rules as written and impose a penalty.  If Dad is ineligible for 3 and  years he may never live to receive Medicaid, something the government no doubt may consider when trying to balance its budget.

 And just another reason why you can’t afford to be unprepared when it comes to long term care.

The application process for Medicaid can take several months or longer.  If, for example, Dad becomes eligible and applies for Medicaid beginning in February, it might take until April, or longer in some cases, for him to receive approval.  In the case of nursing home Medicaid whenever Dad is approved payments will be made on his behalf retroactive to when he first applied (assuming of course that he was eligible in that month).  Not so for assisted living Medicaid.  Approval is not retroactive.

 As an elder law attorney, our focus with clients is on the financial requirements of Medicaid.  I always, however, remind clients that we can’t forget about the medical requirement.  The applicant must meet the test of medical necessity for nursing home level care as determined by a Medicaid nurse who visits the applicant.  In New Jersey, this is true even in the case of assisted living.  It bears repeating.  The assisted living Medicaid applicant must be certified as needing nursing home level care.  Fail that test and the asset and income levels are irrelevant.

 So, if Dad can’t get Medicaid, what then?  If he can’t pay the bill he generally won’t be able to stay in the assisted living facility unless the family pays for his care.  Not a great result but one the family could have avoided.  Before he entered the facility a plan should have been put in place to cover the possibility that he could run out of money.  In some cases that may involve moving assets to a trust, determining what public benefits he can or cannot receive and when, (such as VA Aid and Attendance benefits) or negotiating a contractual modification with the facility before initial entry.  It may mean choosing a different, less expensive, facility or living arrangement.  It all depends on one’s particular situation. 

 The mistake that Dad and his family made is in not looking far enough down the road and failing to sit down with someone knowledgeable about the various issues and pitfalls, such as an elder law attorney.  The lesson to be learned is that you can’t wait until the money runs out to then answer the question "What do I do now?"

 Jane tells me that Mom and Dad have been separated for years, never divorced, just living separate lives under separate roofs, with separate assets.  ‘Dad was never easy to live with’, she tells me, ‘but Mom wasn’t the type to file for divorce.  It wasn’t acceptable.’  ‘So’, she asks me, ‘we can spend down Dad’s assets and then qualify him for Medicaid, right?’

 ’Well’, I tell her, ‘it is a bit more complicated than that’.  Under Medicaid rules, because they are still married, all their assets are combined for purposes of calculating how much to spend down.  Medicaid rules do provide that if the applicant is separated from a spouse for at least one month then he will be treated as a single person and only his assets will count towards the asset spend down.  However, there is no definition of what constitutes a separation and you can be sure that the State will scrutinize it very closely.  Mom may still have to spend some of her assets for Dad’s care even though they have been living single lives for years.  ‘Is there anything we can do,’ Jane asks, as I hear the desperation in her voice.

 Divorce is still an option, although it could be considerably more difficult if Dad doesn’t have the mental capacity to understand the legal process and consent to a divorce settlement.  There is also the matter of the State, again, scrutinizing the divorce, especially if Mom has accumulated and wants to keep more than 50% of the combined assets.  You see, the State assumes the divorce was obtained for the purpose of qualifying for Medicaid.  If Mom keeps more than half of the assets Dad would probably be turned down for benefits.  There may also be other strategies that we have discussed for married couples that could be employed to preserve assets for Mom but, although they are married under the law, they are not really ‘together’.    So preserving Dad’s assets for Mom and vice versa is not the goal.

As Jane puts it, ‘Mom and Dad have lived separate lives for many years.  Mom has struggled to accumulate her own assets and become self sufficient.  How can I tell her that she may lose some of her hard earned money?’.  I didn’t have an answer for Jane.  I do, however, have one for others who may one day be in that situation.  If any of Jane’s story sounds familiar to you, don’t wait till long term care is staring you in the face.  Plan ahead and solve the problem before it reaches crisis proportions or you’ll be faced with the dilemma that Jane and her family face.

Now we work on getting Mom into a nursing home and then apply for Medicaid for her.  The home will have to be sold (unless there is a family member living there but we’ll address that exception in another issue)  but it won’t hold up Mom’s Medicaid, which is important, since it not so easy these days to sell in a what is a down market.  Once the home is sold Mom will lose her eligibility for Medicaid and will need to private pay from the proceeds of the sale.  She also could keep her Medicaid eligibility and pay the proceeds to the State to reimburse it for benefits paid up till that point.  Which option is better depends on how much is realized from the sale and how much is owed to the State.  But, keep in mind that the State pays the nursing home at a lower rate than you or I would pay (approximately 50% less).

And, what about the money that the children paid out of their own pocket for Mom and Dad’s care?  They can be reimbursed from the proceeds once they sell the house.  However, everything must be documented because Medicaid presumes that transfers between family members are gifts, not loans.  If it is a loan then there must be a written agreement.  The best practice is for there to be a recorded mortgage.  At the closing the mortgage is paid off and a discharge is recorded by the Buyer’s attorney.  The children are reimbursed directly and there is a record as far as Medicaid is concerned.

In the end, the parents are paying for their care from their own assets, the children are paid back (money which they will need for their own retirement and long term care needs) and depending on how much long term care is needed and what the home sells for, there may even be some amount left to transfer to the next generation in the form of an inheritance, after the State is reimbursed for benefits they paid out on Mom and Dad’s behalf.

            Actually, there is.  There is a way to move both parents into a nursing home, get them on Medicaid and reimburse the children for monies they paid for their parents’ care.  Medicaid rules are very complex and the timing of each step in the process is critical but it can be done.  Here’s how it works.

The first step is to get one of the parents into a nursing home.  Let’s say it is Dad.  If he is in the hospital already (often the case when we get the call)  then he should be transferred from there to the nursing home.  We then apply for Medicaid.  The house is an exempt asset (ie. not a countable asset for Medicaid eligibility purposes)  since Mom is still living there.  Once we get Dad approved for Medicaid there is what is called a ‘division of assets’.  Whatever is Mom’s is now hers, to be spent on her care but not on Dad’s.  This is the key.  In next week’s blog I’ll discuss the next step, getting Mom on Medicaid.

A recent case in Connecticut highlights how the new Medicaid laws passed as part of the Deficit Reduction Act of 2005 are really hurting residents and nursing homes alike and now potentially also affecting other family members.  In that court case, the nursing home resident’s son signed the admission agreement on behalf of his mother.  As in most nursing home agreements Son was asked to sign as responsible party, which he did not do.  Nevertheless, Nursing Home advised him verbally that he was the responsible party.

            Son then applied for Medicaid benefits on behalf of Mom.  Son did not, however, follow through on the application process in a timely manner.  He failed to provide all the information and documentation that the State needed and he did not spend down Mom’s assets quickly enough, delaying the application’s approval.  As a result, months of benefits were lost, never to be regained, benefits that Nursing Home would have received.

            Nursing Home sued Son on a breach of contract claim.  It claimed that Son undertook an obligation on Mom’s behalf, when he signed the admission agreement, to promptly pursue Medicaid benefits.  Son, in response, argued that he never signed the agreement so there was no contractual obligation on his part.  The court sided with Nursing Home, finding that an oral contract was created between the two parties and that Son violated it by not conscientiously following through.

            A good result for the nursing home, right?  Well, not really, when you account for the time and money it took Nursing Home to get the judgment.  It then has to collect on that judgment, assuming Son doesn’t appeal the decision, which will cause the matter to drag on even further.  And it certainly wasn’t a good result for son, who lost and now is responsible for paying Mom’s bill.   

So how could this have turned out better? If Nursing Home had encouraged Son to retain an elder law attorney to represent Mom in the Medicaid application process.  Sure, there is an expense involved in hiring someone.  But in the end Nursing Home would have received Medicaid benefits when it should have and Son would not be responsible for paying nursing home.  A winning result for all.

 The pitfalls of going it alone are many and varied, especially since the latest round of Medicaid changes effective February, 2006 made the laws and regulations in this area much more complicated.  Timing is critical.  By that, I mean to say, that when you spend down assets and what assets you have at a certain point in time will have an impact on qualifying for benefits.  Let me illustrate by way of example.

 John and Mary were in their 80′s and living in their home, which they owned.  They had other countable assets of approximately $50,000.  John and Mary had done no planning for their long term care needs.  John became ill in October, was admitted to the hospital and then to a nursing home for rehabilitative services.  His condition was such, that he could not go home and needed to remain in the nursing home on a long term basis, at a private pay cost of $10,000 per month.

 Mary was told by various personnel at the hospital and the nursing home that based on their level of assets ‘John would qualify for Medicaid’ in January and they arranged for her to meet with a Medicaid caseworker to make an application for benefits.  Being stressed out by the reality that John would not go home and uncomfortable with the complicated process she did not understand that for John to qualify she would have to spend down a portion of their assets to get below a certain dollar amount.  In her case that number was $27,000.  The caseworker explained this to her at the interview but, quite frankly, she was receiving so much information that she really didn’t fully understand how important that was.

 She waited for medical and nursing home bills to come in.  She figured she owed the money so it was as good as spent.  In other words, in her mind she didn’t have $50,000.  They owed $28,000 so she had $22,000 left.  Not true under Medicaid rules.  Until she wrote those checks, John and Mary were ‘overresourced’, Medicaid’s term for having too much money to qualify for benefits.  If you are overresourced by even $1.00 you won’t get Medicaid for that month.  You will never get Medicaid for that month.

 Had she paid those bills right away John would have qualified for benefits in January.  Instead, she didn’t write those checks until June, meaning John didn’t qualify for Medicaid until July.  Great, so Medicaid picked up the nursing home bill in July.  There was one small problem.  Who was going to pay the nursing home bill for January through June?  The answer was John and Mary, and at the private pay rate of $10,000 per month that was $60,000.  The shame is that this didn’t need to happen.

 This example illustrates the pitfalls of going it alone.  The rules are quite complicated and timing is critical.  You don’t want to be left with a huge nursing home bill which you can’t pay.  The nursing home doesn’t really want to be in the position of suing their residents.  Having a knowledgeable elder law attorney representing you can save huge dollars and huge amounts of stress.

 So how did John and Mary’s problem get resolved?  She hired us to negotiate with the nursing home.  We were able to reduce the bill a little bit and since she only had $22,000 in liquid assets and could not afford to pay the bill  now, the home agreed to take a mortgage against her home.  They’ll get paid when the home is sold.  Not the best end result but as good as could be expected.

Mary (names have been changed) called us because she had been sued for $80,000 by the nursing home caring for her mother, Jane.  Jane had entered Nursing Home on private pay and after spending down her assets qualified for Medicaid.  Under Medicaid rules Jane’s Social Security check went to Nursing Home and Medicaid paid the rest of the bill.  Mary and Nursing Home arranged for the check to go directly to Nursing Home and everything was fine for 8 years or so.

Mary then moved out of state.  Apparently, Social Security assumed that Jane moved too and started sending her checks to her bank account.  Mary did not take notice of this and neither, at least for several months, did Nursing Home.  After 8 years, Jane lost her Medicaid eligibility.

How could this happen?  While Mary does not yet have all the facts (she’ll find out more as the lawsuit winds through the court system), here’s what probably occurred. Because Jane’s income was accumulating in her account, once the balance exceeded $2000 she lost Medicaid eligibility.  Jane’s Social Security is treated as income in the month received but if still in her possession the next month then it is treated as an asset. And each month her balance remained over $2000 she was Medicaid ineligible ‘ and those lost months can never be recovered.  So every month Jane was running up a bill at the nursing home’s private pay rate.

It is not clear why Nursing Home didn’t notice the change or why it took them several months to write to Mary.  They did send Mary a new Medicaid application to complete and file but she either didn’t receive it or didn’t act on it.  It appears that nobody on either side was following up on it so Medicaid was never reinstated for the last year of Jane’s life. Now Nursing Home is looking to recoup a year’s worth of lost payments and Mary is trying to avoid a judgment that she can’t afford to pay.

The sad thing is that this all could have been avoided.  Medicaid rules are quite complex.  Jane’s family and the nursing home needed to keep in contact and stay on top of any changes that could affect Medicaid eligibility.  It is easy to miss something that can very quickly result in the loss of benefits. 

What you would think is the most insignificant change can cause a chain of events that will lead to losing benefits.  You can’t just go on autopilot.  That’s when things fall through the cracks.  That is exactly what happened here.  And now both sides are pointing fingers at each other.  Had Mary retained an elder law attorney to file the Medicaid application, both resident and nursing home would have benefited and perhaps this unfortunate result could have been avoided.  An important lesson to be learned.

Yale also explains why long term care planning must be done well before entry to a nursing home becomes necessary. Congress passed significant changes to the Medicaid laws 2 years ago, known as the Deficit Reduction Act of 2005, changes that the average American is unaware of. Learn why even if you spend down your assets to the Medicaid levels you still may face a Medicaid transfer penalty.

In the second segment, Yale interviews Barbra London of Freedom Eldercare, a licensed home health care agency. Listen to Barbra and Yale talk about the types of services a home health care agency provides and common misconceptions people have about this important resource. They also discuss why, under the new Medicaid laws, hiring an aide directly, rather than through an agency, can trap the unwary and cause a Medicaid ineligibility period.

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To contact Barbra London  201-883-1200 or toll free  866-7 Freedom

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Dad’s health deteriorated to the point where he needed nursing home care.  The couple then spent down their assets and applied for nursing home care for Dad.  Meanwhile Son placed the New Jersey home up for sale.

Much to their surprise, the family was informed that the state Medicaid office denied Dad’s application.  Why? Because the transfer of the home to Son caused a Medicaid ineligibility period.  Dad cannot receive Medicaid for 4 and 1/2 years.  In other words, Son must give the money back to Mom and Dad and they must spend it down before Dad will receive Medicaid.

Son said that he was prepared to pay for Dad’s care.  I advised him to seek the advice of an elder law attorney in his state familiar with the Medicaid laws there before he does that.  It may make more sense for Mom to take some of the money and buy a new home which would be exempt from Medicaid.  There are other strategies that may be beneficial as well and should be explored in greater detail.

The lesson to be learned is to consult with a professional before making any decisions.  There is a maze of laws and services in this country that affect seniors.  It is easy to get tripped up by them and the cost to your family could be enormous.