Medicaid mistakes your lawyer should watch for

About a week ago, I stopped to chat with a man outside the West Chester Wawa across the street from my office. The subject arose as to what we do for a living and the man noted how unfortunate it is that some seniors work their whole lives hoping to leave something for their children and then might lose everything paying for nursing home care.

He did not begrudge anything for himself but his brother, who is disabled, had a difficult adjustment. Their mother’s house was sold to pay the bills and my understanding is that his brother needed to find a home.

I hesitated to tell him but explained that, under the Medicaid rules, his mother could have qualified for Medicaid and the house could have been transferred to his brother without penalty because his brother had a serious disability, the kind of disability that makes a person eligible for Social Security Disability or SSI. His response haunted me: “We were represented by an attorney.”

Medicaid is extremely complicated and becoming more so. Some of the rules are used infrequently. Usually transfer of a house to a child is a mistake but there are exceptions. One is for a disabled child. With the disabled child exception, our office transferred, as just two examples, a house to a son who is blind and a condo to a daughter who is a fully disabled veteran of the first Gulf War. Mistakes can be made by action or by inaction. Here are some common examples.

  1. The gifting mistake. When an average person asks how much he can gift in a year to an individual, he may hear $13,000 or $10,000, $11,000, $12,000. Those numbers have nothing to do with Medicaid. Any of the above gifting would result in penalties under Medicaid.
  2. The transfer of house mistake. Deeding the house to the children or adding a child’s name to the deed is generally considered a transfer of assets without fair consideration and results in Medicaid penalties.
  3. The transfer of everything mistake. There are more reasons than Medicaid why older parents should not transfer everything they own to their children. Their children could die, divorce, file for bankruptcy or spend their money. There are also potential Medicaid penalties for up to five years.
  4. The living trust misunderstanding. Transfer of property into a revocable living trust does not protect anything from being spent down. It can make things more complicated.
  5. Missing the “caretaker child” exception which might allow transfer of the house. While usually it is a mistake to transfer a house to a child, if the child has lived with the parent for at least two years during which time she has cared for the parent such that he or she did not need to go to a nursing home, the “caretaker child” exception might apply. This has to be documented and no one will bring it to the attention of the child or parent unless they receive competent elder law advice.
  6. Missing the “disabled child” exception which might allow transfer of the house. The disabled child exception is less commonly used and may be missed. If an adult child receives Social Security Disability or SSI (Supplemental Security Income), the house might be transferred into his name without penalty to the parent. If the child receives SSI, a welfare program, some planning is needed to assure the child’s benefits but with SSD there is no problem.
  7. Failing to recommend a written family agreement. Anything above $500 a month total left unaccounted for should have a written agreement. It protects, among others, parents and children who live together and children spending money and effort on the family house.
  8. Failing to advise that everything must be disclosed. The government wants to know everything. Bank records are important.
  9. Failing to follow the spousal protected share. If Dad goes into a nursing home, the amount that Mom is allowed to keep is decided at the time of his admission. If Mom keeps paying the nursing home too long, she might spend money that is legally hers. Lawyers handling Medicaid need to know when to tell the spouse at home to stop paying so that Medicaid will pay.
  10. There is gifting and no plan to correct it. When gifting is done by mistake, the government does not make it easy to correct it. Either the person working with this needs to know the detailed rules or needs to seek advice how to handle it. Corrections should be made early before funds are low.

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.

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