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.
Monday, August 23, 2010
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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