One way to eliminate a Medicaid penalty period is to prove that a gift was not intended to protect assets from nursing homes. The State Courts have been reluctant to enforce as specific administrative code section that details when a gift is not considered a gift for Medicaid purposes.
An Administrative Law Judge is a case arising out of Hudson County, has recently issued one of the rare rulings indicating a gift was not made for Medicaid purposes.
In the case, a healthy man, while he was still working, loaned money to a child who was about to loose her house. The man then had a stroke, and other illnesses which required long term nursing care.
The Court ruled that the financial circumstances surrounding the gift, and the sudden onset of disability, merited a ruling that the gift should no result in a Medicaid penalty.
The case will be reviewed by the Director of the Division of Medical Assistance and Health Services, and if the Director acts consistently, the decision will be reversed.
Monday, November 15, 2010
Monday, November 1, 2010
Spousal Resource Figures for 2011 to remain unchanged at 2009 level
Although no official word has been given, a source at the Centers for Medicare and Medicaid Services has informed as my information source, that for the second year in a row the agency will not be increasing the community spouse resource allowances (CSRA). Spousal impoverishment figures for 2009 will remain in effect.
The 2009 minimum CSRA was $21,912 and the maximum was $109,560.
The 2009 minimum CSRA was $21,912 and the maximum was $109,560.
Monday, October 25, 2010
Payments to Agents under Power of Attorney are Considered Gifts (appeal pending).
Payments to a child or children who are the “agent(s)” or more commonly understood as power of attorney for a parent are often examined when applying for Medicaid. In order for a payment to be not considered a gift, the power of attorney document must specifically allow compensation for the agent. In addition, the compensation has to be similar to what a person would pay a third party to do the same tasks. Compensation should not be in lump sums and the recipient should report the payments as income on their State and Federal income tax returns.
A case currently on appeal in New Jersey deals specifically with payments to a child/power of attorney.
In V.M. v. Division of Medical Assistance and Health Services, et al., OAL Docket No. 5769-09 (March 22, 2010, Union County). A New Jersey administrative law judge ruled that a Medicaid applicant's payment to his adult children for services rendered under a power of attorney was properly considered a gift and subject to a penalty period.
V.M., an elderly widower, executed a power of attorney, appointing two of his four adult children as co-agents. In January 2008, after having been admitted to a nursing home and approved for Medicaid nursing home benefits, V.M. sold his former home and received approximately $202,748 in net proceeds. The co-agents reported the sale and receipt of the proceeds to Medicaid. Later they filed an action in superior court seeking compensation of $102,555.55 for services they had rendered over the preceding five or so years, including taking their father to family gatherings, doctor visits, the bank and to dinner, plus $24,400 for expenses incurred on their father's behalf. Medicaid was not notified of the action. As the matter was uncontested, the superior court eventually awarded the co-agents the amounts they had requested.
Subsequently, Medicaid terminated V.M.'s nursing home benefits, concluding that the payment to his adult children for services rendered under the power of attorney was actually a gift. V.M. appealed, asserting that because the superior court had authorized payment to the co-agents for the services, the agency was precluded from treating the payment as an uncompensated transfer and denying benefits.
An administrative law judge (ALJ) disagrees and affirms the denial of Medicaid benefits. The ALJ notes that the superior court had not ruled on Medicaid eligibility but rather on compensating agents under a separate state law. Accordingly, the ALJ concludes that the agency is entitled to consider the payment to the co-agents in the context of the Medicaid eligibility rules and to thereby find that in light of the lengthy time that the co-agents were not compensated for their services, the payment was actually an uncompensated transfer.
A case currently on appeal in New Jersey deals specifically with payments to a child/power of attorney.
In V.M. v. Division of Medical Assistance and Health Services, et al., OAL Docket No. 5769-09 (March 22, 2010, Union County). A New Jersey administrative law judge ruled that a Medicaid applicant's payment to his adult children for services rendered under a power of attorney was properly considered a gift and subject to a penalty period.
V.M., an elderly widower, executed a power of attorney, appointing two of his four adult children as co-agents. In January 2008, after having been admitted to a nursing home and approved for Medicaid nursing home benefits, V.M. sold his former home and received approximately $202,748 in net proceeds. The co-agents reported the sale and receipt of the proceeds to Medicaid. Later they filed an action in superior court seeking compensation of $102,555.55 for services they had rendered over the preceding five or so years, including taking their father to family gatherings, doctor visits, the bank and to dinner, plus $24,400 for expenses incurred on their father's behalf. Medicaid was not notified of the action. As the matter was uncontested, the superior court eventually awarded the co-agents the amounts they had requested.
Subsequently, Medicaid terminated V.M.'s nursing home benefits, concluding that the payment to his adult children for services rendered under the power of attorney was actually a gift. V.M. appealed, asserting that because the superior court had authorized payment to the co-agents for the services, the agency was precluded from treating the payment as an uncompensated transfer and denying benefits.
An administrative law judge (ALJ) disagrees and affirms the denial of Medicaid benefits. The ALJ notes that the superior court had not ruled on Medicaid eligibility but rather on compensating agents under a separate state law. Accordingly, the ALJ concludes that the agency is entitled to consider the payment to the co-agents in the context of the Medicaid eligibility rules and to thereby find that in light of the lengthy time that the co-agents were not compensated for their services, the payment was actually an uncompensated transfer.
Gifts Made with a Power of Attorney – Case Law.
A Minnesota appeals court rules that a son who transferred his father's assets to himself in conjunction with Medicaid planning breached a fiduciary duty to his father and that the transferred assets are part of his father's estate.
This is a very significant case and it provides a good Medicaid Pitfall. If the facts allow planning through gifts, the maker of the gift must be empowered to do so. If the older person is incapable of making a gift, their agent, through a Power of Attorney, must have a specific gift making power. The power of attorney must say something similar to “I give my agent the right to make a gift of my assets, including a gift to my agent.” Otherwise the gift can be reversed.
This is a very significant case and it provides a good Medicaid Pitfall. If the facts allow planning through gifts, the maker of the gift must be empowered to do so. If the older person is incapable of making a gift, their agent, through a Power of Attorney, must have a specific gift making power. The power of attorney must say something similar to “I give my agent the right to make a gift of my assets, including a gift to my agent.” Otherwise the gift can be reversed.
Parent’s Soured Investment in Child’s Business is Not a Gift.
A court in Massachusetts also held that a parent’s investment in a Child’s business was not a gift. In the case the parent loaned money to a business started by a child. The business in essence failed. The Court ruled "there is no Medicaid rule that prohibits an applicant, member or spouse from making speculative investments," and seeing no evidence that the loans were a sham, the Superior Court concludes that there was no disqualifying transfer of assets.
Exempt Gifts - Caregiver Child Exception
One of the major exclusions to the gift penalty rules associated with Medicaid is a transfer to a caregiver child. On my web site you can find my article entitled, “Saving The Family Home” which details the caregiver child exception. We have been hearing grumblings from the State of New Jersey that they want to try and make it harder for caregiver children to take advantage of the exempt gift provision. For instance, at one point New Jersey authorities indicated that they wanted to see a contemporaneous log of the care the child provided for the two year period.
Another real problem with the caregiver child exception is that the rule is very complicated. Children often innocently give Medicaid officials the wrong facts that are then turned against the child. For instance, the child’s motivation for moving in the house should have been to care for the parent. It does not have to be the only motivation, but it has to be the reason conveyed to Medicaid. So if a child moved in because she was divorced or out of work, Medicaid will try and deny the use of the caregiver child exception.
In another case, a Massachusetts court ruled that the parent was not sick enough to need the level of services that the child has to provide in order to make use of the gift penalty exception. A child must provide care above a custodial level and the parent must have a special medical need requiring the care.
So for instance, if an entirely healthy parent suddenly has a stroke, the child may not be considered a caregiver child because the parent would not have needed care for the two years prior to the stroke.
Another real problem with the caregiver child exception is that the rule is very complicated. Children often innocently give Medicaid officials the wrong facts that are then turned against the child. For instance, the child’s motivation for moving in the house should have been to care for the parent. It does not have to be the only motivation, but it has to be the reason conveyed to Medicaid. So if a child moved in because she was divorced or out of work, Medicaid will try and deny the use of the caregiver child exception.
In another case, a Massachusetts court ruled that the parent was not sick enough to need the level of services that the child has to provide in order to make use of the gift penalty exception. A child must provide care above a custodial level and the parent must have a special medical need requiring the care.
So for instance, if an entirely healthy parent suddenly has a stroke, the child may not be considered a caregiver child because the parent would not have needed care for the two years prior to the stroke.
Monday, September 20, 2010
NJ Veteran's Facility Gift Penalties
Most of my clients are surprised when I tell them that the State of New Jersey operates 3 Veteran's nursing facilities. The cost is subsidized by the State and is about half the cost of a "private" nursing facility. The VA facilities are in Vineland, Menlo Park and Paramus. There are two levels of payment at the NJ VA homes based on the Veteran's assets.
The VA homes do not follow the Medicaid gift penalties. There is an entirely different set of penalties.
In New Jersey, when a person applies to a VA home, their assets are examined for the prior three years (Medicaid as we know has a five year look back period). If a person made gifts within the three year look back, they are treated as still owning the funds given away. Now, the treatment of gifts is important because if a Veteran is below the asset maximums, the Veteran only pays about 80% of his or her fixed income (pension and Social Security) for care. If a person is over the asset maximums, they pay an amount based on a variety of factors; however, the cost will be over $5,000.00 a month.
Here is an Example:
Mr. Jones has $80,000.00 and his house. Within 3 years of applying for VA nursing home benefits, he gave away $60,000. When Mr. Jones applies for the VA nursing facility; he will be told that he has to pay the highest rate, in this example $5,000.00 a month, until the $60,000.00 he gave away has been used.
So, unlike the Medicaid regulations which deny coverage to people making gifts, the VA home treats a person making gifts within 36 months as still having the money for purposes of determining whether the Veteran pays the higher fee or the lower fee.
The VA homes do not follow the Medicaid gift penalties. There is an entirely different set of penalties.
In New Jersey, when a person applies to a VA home, their assets are examined for the prior three years (Medicaid as we know has a five year look back period). If a person made gifts within the three year look back, they are treated as still owning the funds given away. Now, the treatment of gifts is important because if a Veteran is below the asset maximums, the Veteran only pays about 80% of his or her fixed income (pension and Social Security) for care. If a person is over the asset maximums, they pay an amount based on a variety of factors; however, the cost will be over $5,000.00 a month.
Here is an Example:
Mr. Jones has $80,000.00 and his house. Within 3 years of applying for VA nursing home benefits, he gave away $60,000. When Mr. Jones applies for the VA nursing facility; he will be told that he has to pay the highest rate, in this example $5,000.00 a month, until the $60,000.00 he gave away has been used.
So, unlike the Medicaid regulations which deny coverage to people making gifts, the VA home treats a person making gifts within 36 months as still having the money for purposes of determining whether the Veteran pays the higher fee or the lower fee.
Monday, August 23, 2010
Annuities
I often hear from clients the myth that annuities are "protected" from nursing homes. Usually the myth originates with an annuity salesperson. I used the words "protected" and "myth" in the previous sentence on purpose.
So first - what does "protected" mean. Well the normal meaning of "protected" is to defend or guard against attack. And, to a certain extent, an annuity will defend the money invested from attack, but the annuity will not protect the nursing home patient his or her spouse or his or her agent under a power of attorney from attack. Here is how it works:
Mrs. Jones owns an annuity. She needs long term nursing care and enters a skilled nursing facility. Mrs. Jones runs out of money and does not apply for Medicaid benefits. Instead, she is going to let the bill build up from the nursing home. Sooner or later the nursing facility is going to file a suit against Mrs. Jones, her husband, and maybe even her child who Mrs. Jones made power of attorney years before.
The nursing facility will win the law suit, and they will get what is known as a "money judgment" against Mrs. Jones. When the nursing facility attempts to collect the money from the annuity, the annuity company will not give them the money. Most annuity companies will not honor the judgment (and usually that is a provision of the annuity contract). Since the facility cannot get their money from the annuity, they will go after the spouse or child for the money.
You may be thinking - "Oh, that is great. I can get free nursing home care and my heirs will get their annuity." What do you think will happen over time of a person does not pay a nursing facility? The facility is duty bound to provide care, but that does not stop them from pressuring the patient. The facility can start the process of discharging the patient. If the facility discharges Mrs. Jones, where is she going to go? Will any facility allow her in knowing she has no funds and is intentionally avoiding payment? What about Mrs. Jones’s spouse and child? How much pressure from the facility will they be able to stand?
What I am suggesting is that using an annuity to avoid paying a nursing facility, will not result in a happy, care free existence for the patient or their loved ones.
Now it gets worse. MOST ANNUITIES ARE NOT PROTECTED FOR MEDICAID PURPOSES!!!!
If Mrs. Jones owns an annuity and applies for Medicaid, she will be denied because the annuity is treated as an asset. The outcome for Mrs. Jones is different based on the annuity. If the annuity could be redeemed, it must be. Any tax and penalties, must be paid, and then the annuity proceeds will just be lumped in with Mrs. Jones' other assets. If, on the other hand, the annuity is "annuitized," then the process is different. Annuitized means that Mrs. Jones has elected a payout of her annuity over a term of years or for her life. Mrs. Jones cannot redeem or close the whole annuity once it is annuitized.
Medicaid requires the holder of an annuitized annuity to sell the stream of payments. There are companies that buy the right to collect the payments from Mrs. Jones. Since the annuity buyer will get the money over a period of years, he, she or it, will not pay the full value of the annuity - they will pay a discounted value. The potential Medicaid recipient will have to sell the annuity and devote the funds to his or her care.
So first - what does "protected" mean. Well the normal meaning of "protected" is to defend or guard against attack. And, to a certain extent, an annuity will defend the money invested from attack, but the annuity will not protect the nursing home patient his or her spouse or his or her agent under a power of attorney from attack. Here is how it works:
Mrs. Jones owns an annuity. She needs long term nursing care and enters a skilled nursing facility. Mrs. Jones runs out of money and does not apply for Medicaid benefits. Instead, she is going to let the bill build up from the nursing home. Sooner or later the nursing facility is going to file a suit against Mrs. Jones, her husband, and maybe even her child who Mrs. Jones made power of attorney years before.
The nursing facility will win the law suit, and they will get what is known as a "money judgment" against Mrs. Jones. When the nursing facility attempts to collect the money from the annuity, the annuity company will not give them the money. Most annuity companies will not honor the judgment (and usually that is a provision of the annuity contract). Since the facility cannot get their money from the annuity, they will go after the spouse or child for the money.
You may be thinking - "Oh, that is great. I can get free nursing home care and my heirs will get their annuity." What do you think will happen over time of a person does not pay a nursing facility? The facility is duty bound to provide care, but that does not stop them from pressuring the patient. The facility can start the process of discharging the patient. If the facility discharges Mrs. Jones, where is she going to go? Will any facility allow her in knowing she has no funds and is intentionally avoiding payment? What about Mrs. Jones’s spouse and child? How much pressure from the facility will they be able to stand?
What I am suggesting is that using an annuity to avoid paying a nursing facility, will not result in a happy, care free existence for the patient or their loved ones.
Now it gets worse. MOST ANNUITIES ARE NOT PROTECTED FOR MEDICAID PURPOSES!!!!
If Mrs. Jones owns an annuity and applies for Medicaid, she will be denied because the annuity is treated as an asset. The outcome for Mrs. Jones is different based on the annuity. If the annuity could be redeemed, it must be. Any tax and penalties, must be paid, and then the annuity proceeds will just be lumped in with Mrs. Jones' other assets. If, on the other hand, the annuity is "annuitized," then the process is different. Annuitized means that Mrs. Jones has elected a payout of her annuity over a term of years or for her life. Mrs. Jones cannot redeem or close the whole annuity once it is annuitized.
Medicaid requires the holder of an annuitized annuity to sell the stream of payments. There are companies that buy the right to collect the payments from Mrs. Jones. Since the annuity buyer will get the money over a period of years, he, she or it, will not pay the full value of the annuity - they will pay a discounted value. The potential Medicaid recipient will have to sell the annuity and devote the funds to his or her care.
Monday, July 26, 2010
How is a "Gift" Problem Fixed?
This is the Million Dollar question. Once a person has made a gift innocently or not, how is the problem fixed.
First, it is important to understand what the problem is. Medicaid penalties only begin to run when:
1. A person is in a nursing home or at home and applies for Medicaid benefits;
2. If that person is single, generally, his or her assets must below $2,000.00 and if the person is married her or she can have no greater then $2,000.00 and the spouse at home must be below his or her spousal resource limit.
The problem occurs when a person is in a nursing home, has only $2,000.00, and is penalized for Medicaid benefits. For instance: If I give my daughter $10,000.00 thinking its "ok" because my plumber told me so, when I apply for Medicaid, I will be penalized for $10,000/$239.41 or 41 days. I do not have the money to pay a nursing home for 41 days (in New Jersey I could need over $12,000.00 to pay for 41 days.
Where do I get the money?
What will happen if I do not get the money?
Solution 1 - My daughter can give me back all the money. When I write "all", I mean all. If my daughter, in the example above, gives me back $9,999.99 I am still penalized for 41 days. Only if she gives me back all the money will my penalty be erased.
This is fine if my daughter has the money to give me. But what if she does not have the money? What will happen?
Not necessarily in order, the nursing home will sue me and my daughter. They may follow the notice procedure required in the State of New Jersey and seek my discharge. Or the facility will be stuck with me, without payment, for a period of time.
Now in this example, my daughter may have the money to give to me, but what if I made charitable donations, paid caregivers illegally, or commingled my money with my daughter? The outcome is the same - unless every penny "given" away by me is returned to me, I will be penalized by Medicaid.
The next blog entry will address an additional solution.
First, it is important to understand what the problem is. Medicaid penalties only begin to run when:
1. A person is in a nursing home or at home and applies for Medicaid benefits;
2. If that person is single, generally, his or her assets must below $2,000.00 and if the person is married her or she can have no greater then $2,000.00 and the spouse at home must be below his or her spousal resource limit.
The problem occurs when a person is in a nursing home, has only $2,000.00, and is penalized for Medicaid benefits. For instance: If I give my daughter $10,000.00 thinking its "ok" because my plumber told me so, when I apply for Medicaid, I will be penalized for $10,000/$239.41 or 41 days. I do not have the money to pay a nursing home for 41 days (in New Jersey I could need over $12,000.00 to pay for 41 days.
Where do I get the money?
What will happen if I do not get the money?
Solution 1 - My daughter can give me back all the money. When I write "all", I mean all. If my daughter, in the example above, gives me back $9,999.99 I am still penalized for 41 days. Only if she gives me back all the money will my penalty be erased.
This is fine if my daughter has the money to give me. But what if she does not have the money? What will happen?
Not necessarily in order, the nursing home will sue me and my daughter. They may follow the notice procedure required in the State of New Jersey and seek my discharge. Or the facility will be stuck with me, without payment, for a period of time.
Now in this example, my daughter may have the money to give to me, but what if I made charitable donations, paid caregivers illegally, or commingled my money with my daughter? The outcome is the same - unless every penny "given" away by me is returned to me, I will be penalized by Medicaid.
The next blog entry will address an additional solution.
Gift Pitfall #4 - Paying another person's expenses.
Gift pitfall #4 is very similar to commingling family funds, but not quite. Many people think if their parent pays their cable bill, telephone or other, small, monthly charge, the payment by the parent will not be considered a gift, or not noticed. This is not the case at all.
When a person applies for Medicaid, they must provide copies of their checks from 2/8/06 to the date of the application. If a person writes two checks to Verizon, for instance, in the same month, they are going to be asked why? If the answer is - "I have two phones," the person will be asked for copies of the bills.
Since the parent will not have a bill in his or her name (but the child's name), the payment will be considered a gift.
The same is true of any payment for a child.
When a person applies for Medicaid, they must provide copies of their checks from 2/8/06 to the date of the application. If a person writes two checks to Verizon, for instance, in the same month, they are going to be asked why? If the answer is - "I have two phones," the person will be asked for copies of the bills.
Since the parent will not have a bill in his or her name (but the child's name), the payment will be considered a gift.
The same is true of any payment for a child.
Wednesday, June 16, 2010
What is a Gift? Continued
Gift Pitfall #3 - Commingling funds.
Only in New Jersey can a person be penalized for Medicaid by simply living with family members.
Many people, parent's and children, live together as a family. They always lived together. When the children were growing up, the parent's paid the family expenses. Later, when the children became earners, they contributed to the family's costs. What I am saying is that some children never move out.
Moreover, it's hard to realize that its time to stop acting like a family. If, however, the parent's do not separate their income, assets and costs from their children, a Medicaid pitfall results.
When a parent pays an expense of a child, Medicaid treats that payment as a gift. However, a family generally does not account for each persons financial contribution and for each persons respective expenditures. Rarely will you see an accounting breaking down the grocery bill by each family member's consumption. So, when funds are commingled it is hard to track how they are used and can result in Medicaid penalties even though there was no intention by the parent to make a gift.
Aggravating this problem is how the money is actually managed. Sometimes a child gives a parent cash, which is deposited in the parent's account (or not) and used to pay an expense. Sometimes the procedure is the other way around, with the parent giving cash to the child, for the child to pay the expense.
So what is wrong with this story?
Medicaid penalties are based on a very low number, $239.41. If a parent gives that amount of cash, monthly, to a child for the 5 years prior to entering a nursing facility, the penalty is 60 days. If the parent living in the facility has a spouse at home, that spouse will have to use some of her Federally protected funds to pay for the 60 days (which could easily amount to $20,000.00). If the parent is single, the children will have to either pay the facility themselves (hopefully after a negotiation), or wait to be sued.
But it takes thousands of dollars to support a family for a month!
In the end, the family is punished for living like a family and not realizing the accounting problem will result in Medicaid penalties.
Is there a solution? Of course! Parents and children should not commingle funds. If they do, unfortunately, they should get a good accountant, keep every receipt, and hope they are lucky. Finally, for those people who find themselves in the midst of a commingling problem, a Certified Elder Law attorney should be contacted.
Only in New Jersey can a person be penalized for Medicaid by simply living with family members.
Many people, parent's and children, live together as a family. They always lived together. When the children were growing up, the parent's paid the family expenses. Later, when the children became earners, they contributed to the family's costs. What I am saying is that some children never move out.
Moreover, it's hard to realize that its time to stop acting like a family. If, however, the parent's do not separate their income, assets and costs from their children, a Medicaid pitfall results.
When a parent pays an expense of a child, Medicaid treats that payment as a gift. However, a family generally does not account for each persons financial contribution and for each persons respective expenditures. Rarely will you see an accounting breaking down the grocery bill by each family member's consumption. So, when funds are commingled it is hard to track how they are used and can result in Medicaid penalties even though there was no intention by the parent to make a gift.
Aggravating this problem is how the money is actually managed. Sometimes a child gives a parent cash, which is deposited in the parent's account (or not) and used to pay an expense. Sometimes the procedure is the other way around, with the parent giving cash to the child, for the child to pay the expense.
So what is wrong with this story?
Medicaid penalties are based on a very low number, $239.41. If a parent gives that amount of cash, monthly, to a child for the 5 years prior to entering a nursing facility, the penalty is 60 days. If the parent living in the facility has a spouse at home, that spouse will have to use some of her Federally protected funds to pay for the 60 days (which could easily amount to $20,000.00). If the parent is single, the children will have to either pay the facility themselves (hopefully after a negotiation), or wait to be sued.
But it takes thousands of dollars to support a family for a month!
In the end, the family is punished for living like a family and not realizing the accounting problem will result in Medicaid penalties.
Is there a solution? Of course! Parents and children should not commingle funds. If they do, unfortunately, they should get a good accountant, keep every receipt, and hope they are lucky. Finally, for those people who find themselves in the midst of a commingling problem, a Certified Elder Law attorney should be contacted.
Wednesday, June 9, 2010
What is a Gift? Continued
Medicaid Pitfall #2.
Annual Gifts of $10,000.00 - $13,000.00
There is a commonly known tax law that says a person will not have to pay gift tax if he or she gives away no more then $13,000.00 (in 2010) to any other person, annually. Many people think the annual exclusion is $10,000. However, the exclusion was indexed for inflation several years ago, so the current figure is $13,000.00
This annual exclusion from Gift Tax HAS NOTHING TO DO WITH MEDICAID. The annual exclusion is a tax law, not a Medicaid law.
For example: Mr. Blue gives $13,000.00 to each of his three daughters. Within 5 years of the gift he applies for Medicaid. Mr. Blue is ineligible for Medicaid for 162 days.
Now, many of you reading this Blog may say - "Oh, no, Harold Grodberg is wrong, my accountant told me so, or my plumber told me so, or my lawyer told me so."
It is very understandable getting incorrect advice. As I indicated in my first post - you must suspend reality when thinking about Medicaid. Medicaid is a law unto itself.
In order to avoid people following bad advice, I will outline how gift tax works.
We all have $1,000,000.00 we can give away, while we are alive, free of tax. This is a tax credit against United State Gift tax. If we make gifts of no more then $13,000.00 per head, per year, we do not USE any of the $1,000,000.00 credit. This also means that if a person gives away greater the $13,000.00 to someone else, the person making the gift will use some of their $1,000,000.00 credit. For the record, the recipient of a gift is not responsible for the tax. Gift tax is imposed on the giver not the receiver.
For Example:
Mrs. Orange gives $20,000.00 to her son this year. He is single, has no children, and Mrs. Orange is also unmarried.
Mrs. Orange has used $7,000.00 of her $1,000,000.00 lifetime credit. Which means she can only give away another $993,000.00 in excess of the $13,000.00 annual exclusion before she will actually have to pay "out of pocket" tax.
On the other hand, if Mrs. Orange applies for Medicaid, she will be ineligible for 83 days ($20,000/$239,41= 83).
Don't fall in the trap of confusing laws. There is a difference between Medicaid law and tax law. In fact there are many differences. Just like there is a difference between personal injury law and Medicaid law or Divorce law and Medicaid law.
Annual Gifts of $10,000.00 - $13,000.00
There is a commonly known tax law that says a person will not have to pay gift tax if he or she gives away no more then $13,000.00 (in 2010) to any other person, annually. Many people think the annual exclusion is $10,000. However, the exclusion was indexed for inflation several years ago, so the current figure is $13,000.00
This annual exclusion from Gift Tax HAS NOTHING TO DO WITH MEDICAID. The annual exclusion is a tax law, not a Medicaid law.
For example: Mr. Blue gives $13,000.00 to each of his three daughters. Within 5 years of the gift he applies for Medicaid. Mr. Blue is ineligible for Medicaid for 162 days.
Now, many of you reading this Blog may say - "Oh, no, Harold Grodberg is wrong, my accountant told me so, or my plumber told me so, or my lawyer told me so."
It is very understandable getting incorrect advice. As I indicated in my first post - you must suspend reality when thinking about Medicaid. Medicaid is a law unto itself.
In order to avoid people following bad advice, I will outline how gift tax works.
We all have $1,000,000.00 we can give away, while we are alive, free of tax. This is a tax credit against United State Gift tax. If we make gifts of no more then $13,000.00 per head, per year, we do not USE any of the $1,000,000.00 credit. This also means that if a person gives away greater the $13,000.00 to someone else, the person making the gift will use some of their $1,000,000.00 credit. For the record, the recipient of a gift is not responsible for the tax. Gift tax is imposed on the giver not the receiver.
For Example:
Mrs. Orange gives $20,000.00 to her son this year. He is single, has no children, and Mrs. Orange is also unmarried.
Mrs. Orange has used $7,000.00 of her $1,000,000.00 lifetime credit. Which means she can only give away another $993,000.00 in excess of the $13,000.00 annual exclusion before she will actually have to pay "out of pocket" tax.
On the other hand, if Mrs. Orange applies for Medicaid, she will be ineligible for 83 days ($20,000/$239,41= 83).
Don't fall in the trap of confusing laws. There is a difference between Medicaid law and tax law. In fact there are many differences. Just like there is a difference between personal injury law and Medicaid law or Divorce law and Medicaid law.
Tuesday, June 8, 2010
What is a "Gift?"
Gift Pitfall #1 - Paying for home care "informally."
"Informally" is a nice way of saying, illegally. But in my experience many people pay for their home care, in cash, to a person who is not trained. Many informal caregivers live in the house and receive room and board in addition to a weekly payment.
From a financial standpoint, if a person who needs round the clock care wants to stay in their home, "informal care" is potentially the most cost effect method of paying for the care.
An "informal" caregiver could be paid $700.00 a week. That same week, from a home health aid agency could cost $1,500.00 or more for the week and a nursing facility, in New Jersey, is over $2,500.00 a week.
I wrote earlier that "informal care" could be the most cost effective method of providing care, but there are some compelling reasons to avoid "informal care."
The most compelling reason to avoid "informal care" is because the payments are considered gifts for Medicaid purposes.
For Example: Mr. Green pays $700.00 a week for "informal home care" for the five years before entering a nursing home. He spent $182,000.00 for care over the 5 years. When Mr. Green applied for Medicaid, the County workers asked him for proof of how he spent the $182,000. He has no proof, because he paid cash. If Mr. Green can provide the County with a signed statement from the caregivers attesting to the payments they received, then he will not be penalized. The problem is that most people who get paid illegally do not want to admit it to a government entity.
So, in the end, Mr. Green will be penalized for $182,000/$239.41 or 760 days. He will not be penalized until his assets fall below $2,000.00 so he has no idea how he will pay the nursing home.
"Informally" is a nice way of saying, illegally. But in my experience many people pay for their home care, in cash, to a person who is not trained. Many informal caregivers live in the house and receive room and board in addition to a weekly payment.
From a financial standpoint, if a person who needs round the clock care wants to stay in their home, "informal care" is potentially the most cost effect method of paying for the care.
An "informal" caregiver could be paid $700.00 a week. That same week, from a home health aid agency could cost $1,500.00 or more for the week and a nursing facility, in New Jersey, is over $2,500.00 a week.
I wrote earlier that "informal care" could be the most cost effective method of providing care, but there are some compelling reasons to avoid "informal care."
The most compelling reason to avoid "informal care" is because the payments are considered gifts for Medicaid purposes.
For Example: Mr. Green pays $700.00 a week for "informal home care" for the five years before entering a nursing home. He spent $182,000.00 for care over the 5 years. When Mr. Green applied for Medicaid, the County workers asked him for proof of how he spent the $182,000. He has no proof, because he paid cash. If Mr. Green can provide the County with a signed statement from the caregivers attesting to the payments they received, then he will not be penalized. The problem is that most people who get paid illegally do not want to admit it to a government entity.
So, in the end, Mr. Green will be penalized for $182,000/$239.41 or 760 days. He will not be penalized until his assets fall below $2,000.00 so he has no idea how he will pay the nursing home.
Monday, June 7, 2010
Post #1 - Welcome - Time to Suspend Reality
Welcome to the New Jersey Medicaid Pitfalls Blog. It is my intention to provide accurate information to Medical providers and patients regarding Medicaid eligibility in long term care facilities.
One theme that I want to begin with is how to think about Medicaid eligibility. Medicaid is a public benefit program. The basic rules are made by the Federal Government but States actually administer the Medicaid programs.
Unfortunately many people apply common sense thinking to the Medicaid realm. THIS IS AN ERROR. You cannot use common sense when trying to understand Medicaid. For example: According to the State of New Jersey when a parent pays a child's mortgage, that is a gift which results in a Medicaid penalty. If, on the other hand, a child pays for his or her parent's nursing home care, that is not a gift that reduces the penalty from the original gift from the parent.
The next several blog entries will deal with what are actually gifts for Medicaid purposes.
One theme that I want to begin with is how to think about Medicaid eligibility. Medicaid is a public benefit program. The basic rules are made by the Federal Government but States actually administer the Medicaid programs.
Unfortunately many people apply common sense thinking to the Medicaid realm. THIS IS AN ERROR. You cannot use common sense when trying to understand Medicaid. For example: According to the State of New Jersey when a parent pays a child's mortgage, that is a gift which results in a Medicaid penalty. If, on the other hand, a child pays for his or her parent's nursing home care, that is not a gift that reduces the penalty from the original gift from the parent.
The next several blog entries will deal with what are actually gifts for Medicaid purposes.
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