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.
Monday, October 25, 2010
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.
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