A common scenario that I am seeing with increasing frequency is the following fact pattern. Dad owns a home but not much else. He needs nursing home care but can’t get a mortgage to tap into the equity to pay for the care. The home is listed for sale but in today’s market, homes aren’t moving quickly. So the children pay the nursing home bill and the cost to maintain the home, with the expectation that when they sell the home they will repay themselves. The family doesn’t have any written documentation to reflect this arrangement and that’s where the problem starts.
So, the children pay for Dad’s care and expenses. Maybe they pay by credit card, sometimes, by check. Some expenses, such as lawn care, they pay cash. Often times they don’t keep records to back up the expenses and if more than one child is helping out no one is keeping a running tally of who is paying what. “We’ll figure it all out later”, they say. Finally, the house is sold. Dad gets $200,000 from the sale. The kids estimate that they have spent $150,000 on Dad’s behalf and take that amount to repay themselves. Dad then spends down the rest for his care.
Now, it’s time to file a Medicaid application. As part of the application Dad must produce financial records for each account he had in existence, going back to February, 2006 (soon to be a 5 year lookback). The State will examine the home sale and discover the transfer from Dad to children. It will treat the transfer as subject to a Medicaid penalty, unless the children can prove the money was repayment for goods or services that Dad received. And that proof must be by documentary evidence. Dad won’t be eligible for benefits for a year or more, depending on the state he lives in. “Bring the money back and spend it down”, the State will say. So what can this family do?
There are a few options. Some involve applying for Medicaid immediately. Others involve family members paying for Dad’s care and then getting reimbursed later. However, the one common element to each option is that there is a written agreement in the form of a note and a mortgage on Dad’s home to secure the loan. The paper trail is the key. Without it the children will never be able to prove that the transfer was for value, and won’t be able to recoup the money, in some cases hundreds of thousands of dollars, advanced for their parent’s care.
And if you have been a frequent reader of this blog you know that the earlier in the process you seek proper advice and guidance the better off you are. You don’t want to wait until filing the application to find all this out because, of course, by then it is too late.