How a Call From Mary’s Attorney Saved Her $90,000
January 11, 2010
One of the common themes I repeat often, when it comes to Medicaid, is that timing is everything. A recent call we received from Mary’s personal injury attorney, Bill, illustrates the point. Mary’s husband, John has dementia and is about to enter a nursing home. Mary and John don’t have much in the way of assets, about $100,000, but Bill is pursuing a claim on Mary’s behalf for injuries she received in a car accident. Bill, recognizing the potential Medicaid issues, called me to ask if John’s situation impacts Mary’s claim. I told him he reached out to me at the right time. Here’s why.
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.
How We Recovered $240,000
December 21, 2009
Jane called because she was flat out of money and desperate. Dad had been in a nursing facility for almost 4 years now. He had spent down his money and Jane had paid the $11,000 per month expense after that, until she was tapped out of her home equity line of credit to the tune of $240,000. Dad owned a home, which Jane had always figured she would eventually sell and reimburse to herself the money she had advanced. She was panicked, however, after someone told her that she might not get that money back because Medicaid would “take the house”. She called us after a friend told her to speak with an elder law attorney.
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.
How Do You Know if You are Getting Accurate Medicaid Information?
November 9, 2009
How many times have you contacted a government office to inquire about some benefit or program and told you are not eligible? Have you then left the office or hung up the phone accepting that what you have been told is true? What if that is just flat out wrong? As an elder law attorney I see that happen all the time, especially when it comes to the Medicaid program. A recent court case last week corrected at least one of those untruths.
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 .
NFL Seat Licenses and Medicaid — Huh?
September 21, 2009
I met with a family with the following scenario. Dad needed nursing home care and the family had done no long term planning. We talked about how under Medicaid rules the couple’s assets would be counted, divided in half and that Mom would be able to keep 50% of the assets up to a maximum of $109,540 and the home. We went through a list of their investments. I then asked if they had anything else of value. Son, Joe, mentioned that Dad had just signed up for Jets season tickets at the new stadium the Giants and Jets will be opening in 2010. ‘We want to keep the tickets in the family’, he said. ‘Dad can just transfer them to us, right?’ That got me thinking. ‘I’m not so sure’, I replied.
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?
Is It Effective Medicaid Planning to Add Someone’s Name to Your Bank Account
August 10, 2009
Mrs. Jones came in to see me. Her husband was diagnosed with Alzheimer’s three years ago and the disease has progressed to the point where he needs long term nursing home care. At the time of the diagnosis she talked to some family friends and they told her to go ahead and add the kids’ names to her bank accounts and mutual funds to protect those assets from Medicaid. Now that her husband is in a nursing home she wonders whether she did the right thing. Unfortunately, she did not.
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.
To Gift or Not to Gift
August 3, 2009
Joe calls me because he wants to understand how Medicaid works. I start to explain how you have to spend down your assets before you can qualify for benefits. That the spend down has to be for value, meaning that you are spending your money and receiving something of equal value in product or service in return. Joe listens and then perks up. "Wait a second", he says. "I can make a gift of $10,000 per person so that doesn’t count, right?". "Wrong", I reply.
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.
The Right Way — And The Wrong Way — To Hire a Home Aide
July 20, 2009
As long term care needs increase and families want to keep their loved ones at home, hiring home health aides often becomes necessary. Paying an aide, however, if not done correctly, can cause Medicaid ineligibility years later, after funds run out. Consider the following very common scenario.
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.
Dad Owns a Home and Needs Nursing Home Care – What do I do?
July 6, 2009
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.
Assisted Living Medicaid – Another Example of the Risks of Going it Alone
June 29, 2009
A few months ago I wrote about the difficulties qualifying for assisted living Medicaid. (See 3/23/09 blog post). Last year I wrote about the risks of trying to handle a Medicaid application yourself. (See 10/5/09 blog post). A recent case we handled in our office illustrates both issues.
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.
Spent Down? Not So Fast
June 15, 2009
Some months ago I wrote about the couple who, not understanding the peculiarities of the Medicaid rules, did not spend down in a timely manner and, as a result, lost six months of Medicaid eligibility. Even though the money was eventually spent those lost months could not be recovered and the wife was stuck with a nursing home bill of $60,000 she should not have had. (See 10-5-08 blog post)
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.
