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.

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.

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.