Are You Making Gifts You aren’t Even Aware of? (Part 1)
September 12, 2011
So often, when I explain to someone how the Medicaid lookback and transfer penalty work, the response I get back is, “Don’t worry. My parents haven’t made any gifts. We don’t have anything to worry about.” But, the term “gift” is such a subjective one. It can mean different things to different people. However, the only definition that matters is the one Medicaid uses. Let me explain.
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
How We Pulled Charlie from a Black Hole of Long Term Care
August 15, 2011
A few months back I wrote about a situation that is not all that uncommon, a nursing home resident with long term care insurance benefits but no other assets. If the insurance payment goes directly to the resident it counts as income, resulting in too much income to qualify for Medicaid. Changing the payment to go to the nursing home could solve the problem but what if that isn’t possible.
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.
“But the Lady Said Medicaid is Gonna Take My House!!”
August 1, 2011
It’s an issue we deal with often, especially in our married couple crisis planning cases. We explain to clients how Medicaid works and engineer a plan to get the sick spouse Medicaid without putting the healthy spouse in the poor house. The healthy spouse will keep the home. This is reassuring to our clients. But, we also tell them that when they walk out of our office they may talk to someone, a friend, family member, neighbor, health care professional etc. who may tell them something that will be the opposite of what we tell them. That causes the panicked call. Why?
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.
Are There Really Any Easy Medicaid Applications?
July 25, 2011
Ben calls us with some basic questions about his mom’s long term care needs as she is very close to needing nursing home care. The subject turns inevitably to Medicaid as I explain the complexities of the program and how people get tripped up by it with often disastrous consequences. Ben then makes a statement I hear often. “The nursing home social worker will help me with the application. She says Mom’s situation is very simple.” But how do either of them know if that’s really true? Is there really such a thing as an easy Medicaid application?
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.
How a Tax Refund Can End Up Costing You Big
June 27, 2011
Janet and Murray have been married for 50 years. Murray is in advanced stages of Alzheimer’s Disease and Janet finally was forced to place him in a nursing home. Murray recently received Medicaid approval and Janet got to keep the house and $100,000 in assets. She filed a joint income tax return for 2010 and recently received a $10,000 refund check payable to her and Murray. Janet’s question, or really statement to me, was “I can keep that money right”? “No so fast”, I replied.
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.
Will I Be Responsible for My Parents’ Nursing Care?
June 20, 2011
That’s a question of real concern for many and one we are hearing more about as the population ages, increasing the number of Americans needing long term care, and federal and state budget deficits continue to grow. Can nursing homes pursue children for unpaid nursing home bills? Can the State deny Medicaid benefits, taking the position that the children ought to pay?
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.
How Getting the Right Advice Can Save You $500,000
June 13, 2011
A recent client of ours presented the following very common fact pattern. Jack and Diane are in their early 60’s. Diane was diagnosed in her 50’s with early onset Alzheimer’s Disease and now needs nursing home care. The couple have a primary home, a small vacation home at the Jersey shore and several hundred thousand dollars of other investments. A classic crisis case, as we call it. We are helping Jack with the immediate task at hand, getting Diane quality care and protecting as much as possible for Jack who is in good health. Jack could have been in a much better place, however, had he talked to us several years ago.
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.
Are You Walking into the Medicaid Office Blindfolded?
June 6, 2011
Here’s the scenario. Mary calls because Dad’s money is going to run out in a few months. She is anticipating the need for Medicaid but wants to get the jump on things by applying now because she heard it can take several months to qualify. My answer is that you generally don’t want to rush to apply. It’s like walking into the Medicaid office wearing a blindfold.
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.
Don’t Make the Same Mistake Bill Made
May 30, 2011
The world is ever changing, and in recent years, with the technology boom, it seems that the rate of change has increased dramatically. In the long term care world, we are seeing the same thing, and not in a good way. We are receiving more calls lately from people in crisis, who we can’t help. Years ago there was always something we could do. Granted, the result would almost always be better had the call been made earlier, but still, there was something we could do.
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.
OK, I Can Keep My Home – But Can I Sell It?
May 9, 2011
A very common question I get from clients and prospects in the following situation. We are working towards qualifying Betty’s husband, Joe, for nursing home Medicaid. I explained to Betty that as long as she is living in the marital home she can keep it. But she will lose some of Joe’s income which will go to the nursing home. “But I can’t afford to keep the home so what happens if I sell it”, she asks. “ Will Joe lose his Medicaid eligibility?”
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.
