How to head off potential Medicaid mistakes
In last week’s column, I noted that Medicaid is still the primary payer for long-term care in nursing homes after private assets have been exhausted and that, unknowingly, families might make serious financial mistakes that could jeopardize those benefits even then. I also promised to describe how those mistakes might be handled.
A word of caution is advised. Like the vehicle commercials on television that tell listeners not to try these maneuvers on their own, this type of adjustment should not be made without professional advice from an attorney who specializes in Medicaid and elder law. Even for professionals, there are pitfalls that should be navigated.
Here is the problem and here, generally, is how the problem is addressed.
Under the federal Deficit Reduction Act that went into effect Feb. 8, 2006, the government will, when an application for Medicaid is filed, look back for the five years prior to the requested effective date to review financial transactions during that time.
The “lookback” on its own, however, does not answer the question what a caseworker should do with the information.
For the family of a senior who might go on Medicaid, it means that, unlike the common understanding that older bank records should be discarded, for Medicaid or other benefits purposes, these records should be kept — at least for five years. Otherwise it will be necessary to order and pay for them from the bank or financial institution at the time of a benefits application.
The five-year lookback is to determine whether there were any “disqualifying transfers” or gifts during the five-year period prior to the Medicaid. This may pose problems for parents who frequently make sizable gifts or “loans” to children and then later need Medicaid. People in this category need to seek advice when they still have funds available.
Total gifts of more than $500 in a given month would be considered but the real issues come about when parents, for instance, pay a child’s mortgage or down payment on a house, make gifts to children at the $13,000 per year amount that many people erroneously believe is the amount they are allowed to give under Medicaid (it is not), transfer their residence or other real estate into a child’s name where there is no exception under the rules for “caretaker child” or disabled child, or help out during a child’s unemployment.
The notion that some people have that they should make massive transfers and then “wait out” the five-year lookback is not a favored technique for many reasons. Other answers are unique to the individual.
1. Seek advice first. Preparation is better than repair. If the “gift” is not really a gift but payment for services that children have provided, then a written family agreement in advance — a device I have described in several prior columns — might be used. If a parent wants to pay children for their actual monetary and labor contributions but does not have available cash, a private reverse mortgage in favor of children might assist so that children are paid ahead of creditors and ahead of the government when the house is sold. Both of these, if properly handled, are not gifts and would not result in disqualification for benefits. Professional advice might identify other exceptions like “caretaker child” or disabled child.
2. If gifting has occurred or is expected to occur, then a recent strategy referred to as “gift and loan” might relate.
“Gift and loan” can only be used when parents still have sufficient available funds. Typically there is a promissory note and loan agreement. In very general terms, it involves a second transaction which is a loan to children or another party which is paid back gradually over the penalty period.
It assumes that there will be a Medicaid penalty but times the return of the funds to pay for a parent’s care during the penalty. Immediate annuities of a type approved by the Deficit Reduction Act, not deferred annuities, are also used in some cases to carry a parent through the penalty.
DRA-compliant immediate annuities, not deferred annuities, have been especially helpful in assisting the spouse at home where a husband or wife is in a nursing home and the spouse at home needs additional income.
About the Author Janet Colliton
Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.