How many times have you contacted a government office to inquire about some benefit or program and told you are not eligible?  Have you then left the office or hung up the phone accepting that what you have been told is true?  What if that is just flat out wrong?  As an elder law attorney I see that happen all the time, especially when it comes to the Medicaid program.  A recent court case last week corrected at least one of those untruths.

A federal court last week finally weighed in on a particular exception to the Medicaid transfer rules that the State of New Jersey has, for some time, misinterpreted.  A transfer of assets from parent to child, if made within 5 years of the date of application for Medicaid benefits, carries a Medicaid penalty, but there are some exceptions to that general rule.  If the transfer is made to a child, or to a trust for the benefit of the disabled child, then that transfer is not subject to a Medicaid penalty.  The State has for as long as I can remember, insisted that this exception applies only if the transfer is to a trust for the sole benefit of the disabled child. 

Now, if you are not familiar with the ins and outs of the Medicaid laws, and were told that your mother is ineligible for this reason, what would you do?  Probably go home and wait till the Medicaid penalty expires, not knowing any better.  My staff has reported back to me on some of our cases the same thing.  I then have to go back to the federal law and state regulations interpreting that law to find the exact sections that support our claim.  Sometimes that is enough to resolve the issue, but other times, such as in the case of Sorber v. Velez, the case decided last week, the State doesn’t budge and we, as elder law attorneys, have to resort to the court system to settle the dispute.  In the Sorber case, the issue came down, in part, to the type of grammar lesson you might remember from elementary school about the proper placement of a comma. The State’s interpretation didn’t seem logical and the court agreed.

One of my staff asked me the other day why the State would take a position that seems so farfetched.  The answer, I think, can be found by looking at the bigger picture of what is playing out in this country.  The government doesn’t have enough money to fund the programs and services it currently has.  Looking at what’s coming, the number of people facing a long term care crisis will continue to increase in the next 20 years as 77 million baby boomers reach senior status.  So, you can expect the State to continue to interpret eligibility standards very strictly.  And sometimes they’ll get it completely wrong.  That’s why the “do it yourself” approach is dangerous.  You could be losing valuable benefits and without the assistance of someone with knowledge of the laws you wouldn’t even know it.   The government wants to push you to the back of the line.   Make sure you protect yourself and fight to maintain your spot at the front .

I met with a family with the following scenario.  Dad needed nursing home care and the family had done no long term planning.  We talked about how under Medicaid rules the couple’s assets would be counted, divided in half and that Mom would be able to keep 50% of the assets up to a maximum of $109,540 and the home.  We went through a list of their investments.  I then asked if they had anything else of value.  Son, Joe, mentioned that Dad had just signed up for Jets season tickets at the new stadium the Giants and Jets will be opening in 2010.  “We want to keep the tickets in the family”, he said.  “Dad can just transfer them to us, right?”  That got me thinking.  “I’m not so sure”, I replied.

 

            If you’re a sports fan, by now you know all about seat licenses.  Both the Giants and Jets are selling season tickets in a new way.  Before you can have the privilege of buying a game ticket you must pay a fee, called a seat license.  The better the seat, the higher the fee.  Joe told me that the license for his family’s seats cost Dad $60,000.  So, what do you think will happen if Dad just transfers his seats and later applies for Medicaid?

 

            Certainly there is no mention of NFL seat licenses in any state Medicaid regulations.  But, doesn’t the license have a value?  Teams are telling their fans that they can resell the license, that it’s really an investment.  It isn’t a stretch, then, for the State to treat the transfer of the license from one generation to another as a transfer for less than fair value subject to a Medicaid penalty.  Especially since the State is facing huge budget deficits and can ill afford to pay out benefits to huge numbers of its residents.  So, do I think that the State will let it go?  Not likely.

 

            Back to Joe and his parents.  I told him that any transfer of the seat license had to be for fair value.  But, that’s easier said than done.  No one really knows what resale value they have since the licenses are brand new and can’t even be resold yet.  There is a lesson to be learned though.  Families with season ticket plans may want to consider transferring them to the next generation while healthy.  Just another reason it’s a good idea to plan for long term care, and if you’re a Jet fan like me, you don’t want to miss out on the possibility of a Super Bowl trip.  It’s gotta happen one of these years – right?

Mrs. Jones came in to see me. Her husband was diagnosed with Alzheimer’s three years ago and the disease has progressed to the point where he needs long term nursing home care. At the time of the diagnosis she talked to some family friends and they told her to go ahead and add the kids’ names to her bank accounts and mutual funds to protect those assets from Medicaid. Now that her husband is in a nursing home she wonders whether she did the right thing. Unfortunately, she did not.

In New Jersey, Medicaid says that adding someone else’s name to a bank account or mutual fund does not transfer the ownership on that account. In other words, if Mrs. Jones had a bank account with $50,000 and she added her daughter Mary’s name to the account, the State would say that she did so for convenience purposes. The entire account still belongs to Mrs. Jones. So even though Mary’s name has been added, the practical effect, from a Medicaid standpoint, is that there has been no gift and the entire account still belongs to Mrs. Jones.

This is true whether we are talking about bank accounts, certificates of deposit, savings bonds, mutual funds or any other liquid asset. The law says there is no gift until, and unless, the child actually takes the money out of the account. Using this same example, if Mrs. Jones added Mary’s name to the account three years ago, there has been no gift made, even if Mary’s Social Security number is used for the account and she pays the taxes on all income. If Mary later takes some money out of the account, and moves it into her own name, then the gift is made at that point in time.

This general rule is not true where real estate is concerned. That’s because if someone’s name is added to real estate, at the time the deed is signed and recorded, then a completed gift has been made.  For instance, let’s say that Mrs. Thompson is a widow and she owns a house valued at $200,000. If she adds her son’s name to the house and then has the deed recorded, at that time she has made a completed gift. A gift in the amount of $100,000 would cause her to be ineligible for Medicaid for 13 months. At the end of that time, however, the Medicaid ineligibility would cease... and one-half of the house’s value would be protected.

 

Whether or not it makes sense to add someone’s name to real estate or financial assets depends upon the facts and circumstances of each particular case.  Be sure to seek the advice of a competent elder law attorney before proceeding.

Joe calls me because he wants to understand how Medicaid works.  I start to explain how you have to spend down your assets before you can qualify for benefits.  That the spend down has to be for value, meaning that you are spending your money and receiving something of equal value in product or service in return.  Joe listens and then perks up.  "Wait a second", he says.  "I can make a gift of $10,000 per person so that doesn’t count, right?".  "Wrong", I reply.

 What Joe has done is make a very common mistake by confusing the annual gift tax exclusion with the Medicaid rules.  So let’s run through the basics and clear it up.  Gift tax is paid when you make a sizable gift to someone who isn’t your spouse.  One of the purposes of the gift tax law is to protect the estate tax.  For example, if I know that my estate of $2,000,000 will be taxed when I die, then why don’t I just transfer all my assets to my loved ones shortly before I die.  The gift tax eliminates this estate tax avoidance strategy.

A certain amount, however, is exempt from the gift tax.  There is a lifetime exclusion of $1,000,000, meaning I can transfer up to that amount, in one lump sum or in smaller increments, over my lifetime.  In addition, I can gift up to $13,000 per person per year (everyone remembers it as $10,000, but several years back an inflation adjustment was added so the number now is $13,000).  Yes, there is no gift tax owed when you make that gift but it does carry a Medicaid transfer penalty.

 How so?  Because the gift tax rules have nothing to do with the Medicaid rules.  On  the one hand, the government is telling us its OK to gift some amount of money without paying tax, but only up to a point.  On the other hand, if we need nursing home care the government doesn’t want to pay for that care unless we spend all of our own money on that care first.

 Every $13,000 gift, therefore, carries a Medicaid transfer penalty, a period during which you are not eligible for  Medicaid.  That penalty, expressed in months, is calculated by taking the transfer for less than fair value (the gift, as we have been discussing) and dividing by the average monthly cost of nursing home care.  This number is set by each state and in some states it varies by region.  Here in New Jersey that number right now is $7282.  This means every $13,000 tax free gift carries a Medicaid penalty of almost 2 months.

 Now, does that mean that you should never make gifts?  No, not necessarily.  It just means that in today’s increasingly complicated world, you have to understand that making those gifts can result in long term consequences, which you may not recognize until it’s too late.  That’s why a carefully thought out long term care plan is critical and getting the proper advice and guidance well before that care is needed is always the best approach.

As long term care needs increase and families want to keep their loved ones at home, hiring home health aides often becomes necessary.  Paying an aide, however, if not done correctly, can cause Medicaid ineligibility years later, after funds run out.   Consider the following very common scenario.

Jane hires a home health aide at $700 per week cash, or $3000 per month.  She keeps the aide 3 years until her funds run out and now needs round the clock care.  A nursing home becomes the only option. 

She applies for Medicaid but is told, “Sorry, you’re not eligible for 15 months.  You’ll have to private pay until then.”   Of course, Jane has no more money.  She’ll have to come up with the funds some other way, perhaps from family members. But at $9000 per month or more that may not be possible.  How did Jane get into this mess?  Because Medicaid treated her payments to the aide ($108,000) as transfers subject to a penalty.

Qualifying for Medicaid requires spending down assets below $2000.  Transferring assets may cause Medicaid ineligibility if you do not receive something of equal value back.  Medicaid calls this a “penalty”.  However, and this is key, you must prove to Medicaid that assets transferred are not subject to a penalty.   

If you pay the aide cash (or by check) and don’t keep proper records Medicaid will assess a penalty.  The penalty is calculated by dividing the transferred amount by the average cost of nursing home care.  When one applies for Medicaid there is now a 5 year lookback period, meaning Medicaid will look back 5 years from the date of the application to find these transfers.  They will add together all the transfers made during that time.  The penalty will begin when all other assets have been spent down and the individual enters a nursing home and applies for Medicaid. 

Of course, that is exactly the time when you have no more money.  The State presumes you gifted the money and so will tell you to get it back, use it and then, after it’s gone to come back and they will pay for your care.  But, you didn’t gift the money so you can’t get it back.

So,how can you avoid Jane’s problem?  By keeping records to prove the payments were not gifts and not paying cash which is difficult to trace.  It is also a good idea to generate detailed invoices of the services which you purchased.    Another, perhaps better, solution is to hire a home health agency that will supply the aide.  It will cost more than hiring an aide directly but your contract with the agency will insure that Medicaid can never challenge the payments as gifts.  And, in the long run it may cost you less because you won’t be stuck with a Medicaid penalty.

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.

A few months ago I wrote about the difficulties qualifying for assisted living Medicaid.  (See 3/23/09 blog post).  Last year I wrote about the risks of trying to handle a Medicaid application yourself.  (See 10/5/09 blog post).  A recent case we handled in our office illustrates both issues.

 John had been in an assisted living facility for several years. His wife, Mary was living at home and private paying for his care.  She had numerous conversations with the assisted living facility about Medicaid and was told that qualifying wouldn’t be a problem and that John could remain in the facility on Medicaid.  Pretty simple, or so it seemed.

 Mary began the long winding journey that we have come to know as the Medicaid application process.  Similar to the couple I wrote about in March, Mary did not understand the timing aspect of Medicaid, that she had to reach a target level of assets before John could qualify and that each month she missed that target was a lost month, never to be recaptured.  This was of paramount importance to her, since she is several years younger than John and will need to preserve as much as she can to live on after he is gone.

 The Medicaid application process dragged on as the caseworker asked for each follow up piece of documentation, all very confusing to Mary.  She finally sought assistance and we were able to help her finally achieve financial eligibility.  At that point Medicaid sent a nurse out to the facility to evaluate John medically, to determine that he needed nursing home care.  Mission accomplished.  John received the go ahead.  Now, all that remained was for the facility to complete its required form, indicating that it would OK John for a Medicaid slot.  Imagine the surprise when we received word of Medicaid’s denial.

 When we followed up, we learned that the facility refused to make a Medicaid slot available, resulting in the denial, despite the promises made to John and Mary.  We were told, however, by Medicaid that John could still be approved if the facility simply changes its stance and agrees to make a slot available.

 John and Mary’s experience is a cautionary tale for families.  Qualifying for Medicaid is anything but simple, especially so when it comes to assisted living.  It requires the cooperation of families and the facilities caring for their loved one.  It is confusing and time consuming and best not handled without the guidance of a qualified professional, such as an elder law attorney.  And keep in mind that much of this is state specific.  While the long term care options are complicated no matter where you live, each state has its own system and set of laws so make sure you consult with someone familiar with the process in the state where your loved one lives.

Some months ago I wrote about the couple who, not understanding the peculiarities of the Medicaid rules, did not spend down in a timely manner and, as a result, lost six months of Medicaid eligibility.  Even though the money was eventually spent those lost months could not be recovered and the wife was stuck with a nursing home bill of $60,000 she should not have had. (See 10-5-08 blog post)

 The ins and outs of Medicaid are complex and confusing.  Another example which we recently addressed in our office highlights that point.  Mr. Jones was in a nursing home and we were applying for institutional Medicaid.  Under Medicaid rules the applicant needs to be below $2000 in assets as of the first moment of the first day of the month in order to qualify for Medicaid for that month.  We tell clients that they must be below this number as of the last day of the preceding month.

 Spending down means making transfers for value, that is to say, a purchase of goods or services for fair or equal value.  Very often this spend down occurs right up until the last day of the month.  So, what happens if I write a check to pay a bill on the 31st of the month but the person or business I give it to doesn’t cash it until the next month?  As long as it is dated the 31st (or earlier) and you give it to that person or business no later than the 31st, then it is counted as being spent even though it will not clear your checking account until the next month.

 Now, this all sounds very trivial, and I would agree with you, but don’t think for a minute that the State will overlook these transactions.  They won’t.  They scrutinize them very carefully.  If you’re over the Medicaid limit by a dollar, you’re over for that month and have to wait until the next month.  (See above)

 Let’s go back to Mr. Jones.  His son was spending down Dad’s assets.  He had credit card, rent and utility bills to pay.  We spoke on the 31st and Son confirmed that Dad’s 3 accounts totaled $1200 after accounting for payments.  Now, we didn’t have statements yet for one of the accounts so we had to rely on Son’s statement.  We filed the application and several weeks went by before we heard from the Medicaid office.  They wanted missing statements from one of the accounts at an out of state bank.  With some difficulty (because the bank at first balked at accepting the power of attorney Dad had executed in Son’s favor) we obtained the statements but were surprised to learn that some of the bills were not paid by check, but rather by electronic transfer on the first of the month.  So, while Son kept telling us that Dad’s accounts totaled $1200 that was not, in fact, true.  He was counting these electronic debits which Medicaid would not.

 As it turned out, we still were under $2000 in Mr. Jones’ case, but not by much.  (We tell clients we want them to be well below $2000 to leave room for just these types of surprises.)  The next case may not work out so favorably.  Just another example of how tricky the Medicaid rules really are and why you don’t want to go it alone.

Last week I wrote about Dad who gifted a large sum to his children and within 6 months needed long term care.  Because the money had been spent and could not be returned I had to explain to the daughter that Dad would not be eligible for Medicaid for 4 and ½ years.  A complete disaster.  But this week let’s take a look at a success story, one in which we were able to work to fix the mistakes that were made, long before long term care and Medicaid were needed.

Two years ago Mary contacted me concerning her mom who was living in an assisted living facility with an aide that she and her sisters were paying cash.  Mom had transferred her assets to her 3 daughters.  They had begun to spend some of the money on Mom’s care but had also opened and closed accounts, moving, combining and commingling assets.  Over time it would have been very difficult to follow the paper trail and establish with Medicaid that Mom’s money had been spent for her care, and not gifted to the children.  Unlike last week’s family, however, Mary reached out to me within a few months after the initial transfers and, as it turns out, almost 2 years before we applied for Medicaid.

We quickly counseled Mary that the assets had to be returned, and, thankfully, although some had been spent on Mom’s care, she and her sisters still had possession of the balance.  We then guided Mary on the records that she needed to obtain in preparation for the anticipated Medicaid application.  While she still employed the aides we were able to prepare invoices and documentation showing that the cash withdrawals were not gifts, but payment for services, including a statement from the facility.  Mary had been paying the facility bill on her credit card and then taking money from Mom’s account (which was titled in Mary’s name).  We had her go back through her records and copy the credit card bills with those charges and match up payments back to her from “Mom’s account”.  We also counseled her on a better way to make those payments.

Finally, Mary and her sisters had moved money from one account to another, for convenience, a better interest rate or to keep FDIC insurance coverage.  Without recognizing it, however, they were muddying the paper trail.  You see, Medicaid requires as many as 5 years of financial records to show how money has been spent.  Mary and her sisters didn’t realize the problems they were creating. We painstakingly had to document all the transfers from one account to another and transfers in and out of each account.

As I said, this was a success story.  2 months ago we applied for Medicaid.  We provided Medicaid with details of each transaction, backed by supporting documentation.  Last week the family received Medicaid approval without a hitch.  Every dollar had been accounted for and we achieved a smooth transition to Medicaid with no ineligibility period.  Financially, the family can rest easy that Mom’s care is paid for and the nursing facility, which receives those Medicaid benefits, is happy that their resident went from private pay to Medicaid without interruption of payment.  An example of the way things can work if you have someone with knowledge guiding you through the process.

In February, 2006 Congress passed some significant changes to the Medicaid laws that created some very dangerous traps for unprepared families needing long term care. At the time I wrote about a case in which Granddad gifted his money to  Granddaughter who moved in to care for him. When she could no longer provide the care and applied for Medicaid she was told, mistakenly, that he was not eligible because of the gifts. It turned out that the Medicaid ineligibility period had expired.  We filed for Medicaid on her behalf and the application was approved. A happy ending, but one which I wrote at the time would not end so happily under the new law.

 

Last week I received a call with an all too common story. Mom had recently died. Dad moved in with Daughter, Jane and the plan was for him to live there the rest of his life. At the same time, Dad gifted $150,000 to Jane and her brother, Joe. "It's Dad's money. He can do what he wants with it", she told me.

 

Well, I think you can guess what happened. Jane was unprepared for the reality of long term care. I could hear the stress in her voice as she described the deterioration of Dad's mental and physical state, from the mood swings and erratic behavior to the declining personal hygiene and the inability to walk without assistance. His care needs were increasing and Jane was unable to handle the increased demands on her time while caring for her own young children.

 

"I just never expected this", she exclaimed."  I can't do this anymore. I need to get Dad into a nursing home and he has $50,000 left.  What do I do?", she pleaded. I explained to her that once his money was spent down he could qualify for Medicaid, but she and Joe would need to return the $150,000. But here was the problem. Jane and Joe had already spent the money and, therefore, couldn't return it. "Well”, I told her, "when Dad's remaining $50,000 is spent down he still won't be Medicaid eligible for another 4 years. That’s because the Medicaid penalty doesn’t start until he has less than $2000 to his name and he needs nursing home care.

 

"It's so unfair," she cried. "The government is forcing me into poverty to pay for Dad's care." I had to patiently explain to her that she and her brother did receive a substantial sum from Dad, money that should be spent for his own care before public funds could be tapped.  The sad truth, however, is that had the family consulted with an elder law attorney before the gifts were made, Dad could have transferred some assets but enough would have been preserved to cover the possibility that he would need long term care before Medicaid eligiblity.  Unfortunately, in Jane’s case I didn’t have any solution to her problem.  She would have to figure out how to care for her Dad or pay out of her own pocket until the Medicaid ineligibility period expired.  It didn’t have to turn out this way.  A cautionary tale for all.

Jane’s husband, John, was recently hospitalized and nursing home care was looking more than likely.  At that time, their assets totaled approximately $150,000 (not including their home and one car, both of which are “exempt” for Medicaid purposes). Jane went to the Board of Social Services to see what benefits would be available to help her pay for her husband’s nursing home costs. The caseworker explained to Jane that, upon application for Medicaid benefits, the state will total all of the assets she and John own on the day he entered the nursing home (the “snapshot date”). The state will then divide their assets in half (“division of assets”) and Jane is entitled to keep one-half of the couple’s assets, but only up to a maximum of $109,540.  John will qualify for Medicaid once his “half” of the assets are spent down below $2000.

Jane and John needed to spend their assets down to $77,000 before qualifying John for benefits. Jane was distraught at the idea of having to spend her life savings … what about her own health care costs?  A social worker at the hospital recommended that Jane contact an elder law attorney to see if there were ways they could preserve more of their assets. When we met Jane we explained that there was a way she would be able to increase the amount of assets she is entitled to keep. Here is how.

 

Jane and John owned their home free and clear, with  no mortgage. It was no problem for them to take a home equity line of credit in the amount of $100,000, since their home was worth approximately $400,000. Jane immediately borrowed $70,000 against the line, before John entered the nursing home. By doing so, she increased the amount of assets at the snapshot date from $170,000 to $220,000.  This meant that Jane could keep $109,540 and the couple would need to spend the remaining assets down to $2000.  In other words, the couple would have to spend $110,460 before John could qualify for nursing home benefits.

 After John entered the nursing home we instructed Jane to repay the line of credit leaving another $40,440 to spend down.  Paying the nursing home and other bills quickly accomplished that and we were able to get John Medicaid.  The end result was that Jane kept nearly $110,000 of their combined $150,000, much needed money considering she was also going to lose some of John’s income and could very well outlive John by 5 years or more.

 A word of caution.  This scenario is fact specific to Jane and John and should not be considered without proper counseling. The bottom line, however, is that before you start spending down, you should seek advice from someone who knows the Medicaid laws.

Mary and Joe own their home and have $150,000 in savings.  They have wills leaving everything to each other and then alternatively to their children, but they have done nothing to address their long term care needs.  Joe is now about to enter a nursing home and Mary is faced with spending down to $75,000 and losing Joe’s income before he will be eligible for Medicaid.  A classic crisis planning case.  Does Mary have any options?

Actually, yes.   While she will have to spend down there are ways to spend that will be more beneficial for Mary.  Let’s go through a list of some of them.  At the top of the list is setting up an irrevocable burial fund to pay for both of their funerals.  Better to do that now.  Otherwise she’ll have to take that expense out of what Medicaid says she can keep.  Other strategies focus on exempt assets, the house and a car.  Mary will keep the house and one car.  Of the $75,000 that she has to spend down she could fix up the house.  That might include replacing an old cooling or heating system, installing new windows and/or siding and remodeling the interior.  If she makes improvements that enhance the value of the home should she decide to sell that will result in more money for her to live on.

How about her car?  Mary has a 10 year old car.  It is better for her to purchase a new car as part of the spend down.  Or perhaps she has a car loan that she is paying off over time.  Paying it off before applying for Medicaid may be the better alternative.  That applies for other debt, such as credit cards or other installment loans.  Finally, Mary ought to look at anticipated expenses.  For example, if she or Joe needs dental work now may be the time to do it.

Some of the spend down will need to go to the nursing home to pay for the cost of care at its private pay rate so it is important to determine what amount will be necessary to get Joe into a quality facility.  Knowing that, they can then work backwards to determine what they have left to spend on the other items.  Additionally, if Joe is not yet in the hospital or nursing home it may be possible for Mary to keep more than $75,000 by taking a home equity line of credit (more on that in next week’s post).

A word of caution, however.  One size does not fit all.  What is best for one person may not be right for another.  Medicaid rules are very complicated and quite technical.  Before taking any action it is best to consult with an elder law attorney well versed in Medicaid law.  But, if done properly, Mary can preserve more than the 50% of assets that Medicaid laws say she can keep.  This is especially important, given the possibility that Mary may outlive Joe by 5 or 10 years or more.

As the current economic crisis deepens, it is becoming increasingly clear that we are heading into uncharted waters, in so many respects.  Specifically, however, I am talking about the long term care arena, and a recent phone call I received highlights this so clearly.

 John called concerning his father.  Dad owns a home in which he lives.  Home health aides come into the home to assist Dad but as his health deteriorates and he needs increased care John believes that Dad will very soon need to move to a nursing facility.  Now, here is where it gets interesting.

 Dad took a reverse mortgage for $300,000 and he took it in a lump sum.  John’s plan was to invest the money in the market, get a decent rate of return that would help meet Dad’s expenses.  Well, we know what has happened in the past year.  The stock market has headed south.  Dad’s investment headed south too.  He lost roughly half of his investment.  That’s bad enough.  But here is the problem.  John transferred the money to an account in his name.  Not because he intended to keep it, but because it was just easier to manage the funds that way.

 When he did that, however, he caused a Medicaid transfer penalty.  In New Jersey that penalty is approximately 3 and ½ years.  So what happens when Dad sells his home and uses the sale proceeds (less the amount he pays back to the bank) for his nursing home care?  He will be ineligible for Medicaid unless John transfers back the money.  Except that he doesn’t have all of it.

 I know.  You’re thinking, “Will Medicaid really deny Dad’s application if John can show that the loss in value occurred in the market, and that he didn’t take the money?”  I don’t know.  Maybe, maybe not.  You see, we are living in unusual times.  Many states are struggling with budget deficits.  Medicaid is one of the biggest, if not the biggest, program for most states.  If they don’t have the money to fund these programs I can certainly see them applying the Medicaid rules as written and impose a penalty.  If Dad is ineligible for 3 and ½ years he may never live to receive Medicaid, something the government no doubt may consider when trying to balance its budget.

 And just another reason why you can’t afford to be unprepared when it comes to long term care.

Dad has been living in an assisted living facility for 3 years at a cost of $4500 per month.  He likes it there, is safe and well cared for.  There is one small problem.  He is running out of money and the family is becoming desperate.
 
 Fortunately, some states have Medicaid programs that cover assisted living care but the rules can vary significantly from nursing home Medicaid. In New Jersey, for example, if income exceeds the Medicaid cap ($2022 per month in 2009) the assisted living program won’t, under any circumstances, be an option.  For those needing nursing home care, on the other hand, we have two Medicaid programs, one for those who do not exceed the income cap and a second for those who do. 

The application process for Medicaid can take several months or longer.  If, for example, Dad becomes eligible and applies for Medicaid beginning in February, it might take until April, or longer in some cases, for him to receive approval.  In the case of nursing home Medicaid whenever Dad is approved payments will be made on his behalf retroactive to when he first applied (assuming of course that he was eligible in that month).  Not so for assisted living Medicaid.  Approval is not retroactive.

 As an elder law attorney, our focus with clients is on the financial requirements of Medicaid.  I always, however, remind clients that we can’t forget about the medical requirement.  The applicant must meet the test of medical necessity for nursing home level care as determined by a Medicaid nurse who visits the applicant.  In New Jersey, this is true even in the case of assisted living.  It bears repeating.  The assisted living Medicaid applicant must be certified as needing nursing home level care.  Fail that test and the asset and income levels are irrelevant.

 So, if Dad can’t get Medicaid, what then?  If he can’t pay the bill he generally won’t be able to stay in the assisted living facility unless the family pays for his care.  Not a great result but one the family could have avoided.  Before he entered the facility a plan should have been put in place to cover the possibility that he could run out of money.  In some cases that may involve moving assets to a trust, determining what public benefits he can or cannot receive and when, (such as VA Aid and Attendance benefits) or negotiating a contractual modification with the facility before initial entry.  It may mean choosing a different, less expensive, facility or living arrangement.  It all depends on one’s particular situation. 

 The mistake that Dad and his family made is in not looking far enough down the road and failing to sit down with someone knowledgeable about the various issues and pitfalls, such as an elder law attorney.  The lesson to be learned is that you can’t wait until the money runs out to then answer the question "What do I do now?"

Jane calls us to relate the same problem that many Americans today are coping with, trying to care for aging parents.  She calls because Dad’s health is rapidly deteriorating and she fears he will need nursing home care.  I ask about Mom’s health.  Jane replies that she is healthy.  And here is the twist, where the story becomes more complicated.

 Jane tells me that Mom and Dad have been separated for years, never divorced, just living separate lives under separate roofs, with separate assets.  “Dad was never easy to live with”, she tells me, “but Mom wasn’t the type to file for divorce.  It wasn’t acceptable.”  “So”, she asks me, “we can spend down Dad’s assets and then qualify him for Medicaid, right?”

 “Well”, I tell her, “it is a bit more complicated than that”.  Under Medicaid rules, because they are still married, all their assets are combined for purposes of calculating how much to spend down.  Medicaid rules do provide that if the applicant is separated from a spouse for at least one month then he will be treated as a single person and only his assets will count towards the asset spend down.  However, there is no definition of what constitutes a separation and you can be sure that the State will scrutinize it very closely.  Mom may still have to spend some of her assets for Dad’s care even though they have been living single lives for years.  “Is there anything we can do,” Jane asks, as I hear the desperation in her voice.

 Divorce is still an option, although it could be considerably more difficult if Dad doesn’t have the mental capacity to understand the legal process and consent to a divorce settlement.  There is also the matter of the State, again, scrutinizing the divorce, especially if Mom has accumulated and wants to keep more than 50% of the combined assets.  You see, the State assumes the divorce was obtained for the purpose of qualifying for Medicaid.  If Mom keeps more than half of the assets Dad would probably be turned down for benefits.  There may also be other strategies that we have discussed for married couples that could be employed to preserve assets for Mom but, although they are married under the law, they are not really “together”.    So preserving Dad’s assets for Mom and vice versa is not the goal.

As Jane puts it, “Mom and Dad have lived separate lives for many years.  Mom has struggled to accumulate her own assets and become self sufficient.  How can I tell her that she may lose some of her hard earned money?”.  I didn’t have an answer for Jane.  I do, however, have one for others who may one day be in that situation.  If any of Jane’s story sounds familiar to you, don’t wait till long term care is staring you in the face.  Plan ahead and solve the problem before it reaches crisis proportions or you’ll be faced with the dilemma that Jane and her family face.

So, in last week’s blog I presented a common scenario, Mom and Dad both needing long term care and nothing but a house left in their names.  The children are paying for their care to the tune of $10,000 per month.  We get Dad on Medicaid first. 

Now we work on getting Mom into a nursing home and then apply for Medicaid for her.  The home will have to be sold (unless there is a family member living there but we’ll address that exception in another issue)  but it won’t hold up Mom’s Medicaid, which is important, since it not so easy these days to sell in a what is a down market.  Once the home is sold Mom will lose her eligibility for Medicaid and will need to private pay from the proceeds of the sale.  She also could keep her Medicaid eligibility and pay the proceeds to the State to reimburse it for benefits paid up till that point.  Which option is better depends on how much is realized from the sale and how much is owed to the State.  But, keep in mind that the State pays the nursing home at a lower rate than you or I would pay (approximately 50% less).

And, what about the money that the children paid out of their own pocket for Mom and Dad’s care?  They can be reimbursed from the proceeds once they sell the house.  However, everything must be documented because Medicaid presumes that transfers between family members are gifts, not loans.  If it is a loan then there must be a written agreement.  The best practice is for there to be a recorded mortgage.  At the closing the mortgage is paid off and a discharge is recorded by the Buyer’s attorney.  The children are reimbursed directly and there is a record as far as Medicaid is concerned.

In the end, the parents are paying for their care from their own assets, the children are paid back (money which they will need for their own retirement and long term care needs) and depending on how much long term care is needed and what the home sells for, there may even be some amount left to transfer to the next generation in the form of an inheritance, after the State is reimbursed for benefits they paid out on Mom and Dad’s behalf.

Mom and Dad are still living in their home which they own.  They both need round the clock nursing home level care and have home health aides living with them.  This has been going on for a number of years and they have spent down all their assets on care and maintaining the home.  Now the children are spending their own money, in some cases as much as $10,000 per month or more, with no end in sight.  They want to sell the home but in today’s economy and real estate market that isn’t as easy as it once was.  Their current predicament is taxing on the family, both financially and emotionally.  Last week I talked about a reverse mortgage as a possible solution.  Is there any other way out?

 

            Actually, there is.  There is a way to move both parents into a nursing home, get them on Medicaid and reimburse the children for monies they paid for their parents’ care.  Medicaid rules are very complex and the timing of each step in the process is critical but it can be done.  Here’s how it works.

 

The first step is to get one of the parents into a nursing home.  Let’s say it is Dad.  If he is in the hospital already (often the case when we get the call)  then he should be transferred from there to the nursing home.  We then apply for Medicaid.  The house is an exempt asset (ie. not a countable asset for Medicaid eligibility purposes)  since Mom is still living there.  Once we get Dad approved for Medicaid there is what is called a “division of assets”.  Whatever is Mom’s is now hers, to be spent on her care but not on Dad’s.  This is the key.  In next week’s blog I’ll discuss the next step, getting Mom on Medicaid.

            Many times the children of my elderly clients ask whether they can be held responsible for Mom or Dad’s nursing home bill.  My answer always was that there wasn’t anything to worry about unless you take your parents money.  That no longer appears to be the case.

A recent case in Connecticut highlights how the new Medicaid laws passed as part of the Deficit Reduction Act of 2005 are really hurting residents and nursing homes alike and now potentially also affecting other family members.  In that court case, the nursing home resident’s son signed the admission agreement on behalf of his mother.  As in most nursing home agreements Son was asked to sign as responsible party, which he did not do.  Nevertheless, Nursing Home advised him verbally that he was the responsible party.

            Son then applied for Medicaid benefits on behalf of Mom.  Son did not, however, follow through on the application process in a timely manner.  He failed to provide all the information and documentation that the State needed and he did not spend down Mom’s assets quickly enough, delaying the application’s approval.  As a result, months of benefits were lost, never to be regained, benefits that Nursing Home would have received.

            Nursing Home sued Son on a breach of contract claim.  It claimed that Son undertook an obligation on Mom’s behalf, when he signed the admission agreement, to promptly pursue Medicaid benefits.  Son, in response, argued that he never signed the agreement so there was no contractual obligation on his part.  The court sided with Nursing Home, finding that an oral contract was created between the two parties and that Son violated it by not conscientiously following through.

            A good result for the nursing home, right?  Well, not really, when you account for the time and money it took Nursing Home to get the judgment.  It then has to collect on that judgment, assuming Son doesn’t appeal the decision, which will cause the matter to drag on even further.  And it certainly wasn’t a good result for son, who lost and now is responsible for paying Mom’s bill.   

So how could this have turned out better? If Nursing Home had encouraged Son to retain an elder law attorney to represent Mom in the Medicaid application process.  Sure, there is an expense involved in hiring someone.  But in the end Nursing Home would have received Medicaid benefits when it should have and Son would not be responsible for paying nursing home.  A winning result for all.

When money is running out and the family is faced with the need to apply for Medicaid to pay for long term care the question becomes “should we do this ourselves or should we hire an elder law attorney to help?”  Sometimes the hospital or the nursing home tells the family they will qualify without too much difficulty.  So they try to do it themselves.

 The pitfalls of going it alone are many and varied, especially since the latest round of Medicaid changes effective February, 2006 made the laws and regulations in this area much more complicated.  Timing is critical.  By that, I mean to say, that when you spend down assets and what assets you have at a certain point in time will have an impact on qualifying for benefits.  Let me illustrate by way of example.

 John and Mary were in their 80’s and living in their home, which they owned.  They had other countable assets of approximately $50,000.  John and Mary had done no planning for their long term care needs.  John became ill in October, was admitted to the hospital and then to a nursing home for rehabilitative services.  His condition was such, that he could not go home and needed to remain in the nursing home on a long term basis, at a private pay cost of $10,000 per month.

 Mary was told by various personnel at the hospital and the nursing home that based on their level of assets “John would qualify for Medicaid” in January and they arranged for her to meet with a Medicaid caseworker to make an application for benefits.  Being stressed out by the reality that John would not go home and uncomfortable with the complicated process she did not understand that for John to qualify she would have to spend down a portion of their assets to get below a certain dollar amount.  In her case that number was $27,000.  The caseworker explained this to her at the interview but, quite frankly, she was receiving so much information that she really didn’t fully understand how important that was.

 She waited for medical and nursing home bills to come in.  She figured she owed the money so it was as good as spent.  In other words, in her mind she didn’t have $50,000.  They owed $28,000 so she had $22,000 left.  Not true under Medicaid rules.  Until she wrote those checks, John and Mary were “overresourced”, Medicaid’s term for having too much money to qualify for benefits.  If you are overresourced by even $1.00 you won’t get Medicaid for that month.  You will never get Medicaid for that month.

 Had she paid those bills right away John would have qualified for benefits in January.  Instead, she didn’t write those checks until June, meaning John didn’t qualify for Medicaid until July.  Great, so Medicaid picked up the nursing home bill in July.  There was one small problem.  Who was going to pay the nursing home bill for January through June?  The answer was John and Mary, and at the private pay rate of $10,000 per month that was $60,000.  The shame is that this didn’t need to happen.

 This example illustrates the pitfalls of going it alone.  The rules are quite complicated and timing is critical.  You don’t want to be left with a huge nursing home bill which you can’t pay.  The nursing home doesn’t really want to be in the position of suing their residents.  Having a knowledgeable elder law attorney representing you can save huge dollars and huge amounts of stress.

 So how did John and Mary’s problem get resolved?  She hired us to negotiate with the nursing home.  We were able to reduce the bill a little bit and since she only had $22,000 in liquid assets and could not afford to pay the bill  now, the home agreed to take a mortgage against her home.  They’ll get paid when the home is sold.  Not the best end result but as good as could be expected.

The long term care system is a maze and Medicaid in particular is quite complicated.  A recent call to our office illustrates that even after receiving Medicaid there are pitfalls to avoid that can cause one to lose Medicaid. 

Mary (names have been changed) called us because she had been sued for $80,000 by the nursing home caring for her mother, Jane.  Jane had entered Nursing Home on private pay and after spending down her assets qualified for Medicaid.  Under Medicaid rules Jane’s Social Security check went to Nursing Home and Medicaid paid the rest of the bill.  Mary and Nursing Home arranged for the check to go directly to Nursing Home and everything was fine for 8 years or so.

Mary then moved out of state.  Apparently, Social Security assumed that Jane moved too and started sending her checks to her bank account.  Mary did not take notice of this and neither, at least for several months, did Nursing Home.  After 8 years, Jane lost her Medicaid eligibility.

How could this happen?  While Mary does not yet have all the facts (she’ll find out more as the lawsuit winds through the court system), here’s what probably occurred. Because Jane’s income was accumulating in her account, once the balance exceeded $2000 she lost Medicaid eligibility.  Jane’s Social Security is treated as income in the month received but if still in her possession the next month then it is treated as an asset. And each month her balance remained over $2000 she was Medicaid ineligible – and those lost months can never be recovered.  So every month Jane was running up a bill at the nursing home’s private pay rate.

It is not clear why Nursing Home didn’t notice the change or why it took them several months to write to Mary.  They did send Mary a new Medicaid application to complete and file but she either didn’t receive it or didn’t act on it.  It appears that nobody on either side was following up on it so Medicaid was never reinstated for the last year of Jane’s life. Now Nursing Home is looking to recoup a year’s worth of lost payments and Mary is trying to avoid a judgment that she can’t afford to pay.

The sad thing is that this all could have been avoided.  Medicaid rules are quite complex.  Jane’s family and the nursing home needed to keep in contact and stay on top of any changes that could affect Medicaid eligibility.  It is easy to miss something that can very quickly result in the loss of benefits. 

What you would think is the most insignificant change can cause a chain of events that will lead to losing benefits.  You can’t just go on autopilot.  That’s when things fall through the cracks.  That is exactly what happened here.  And now both sides are pointing fingers at each other.  Had Mary retained an elder law attorney to file the Medicaid application, both resident and nursing home would have benefited and perhaps this unfortunate result could have been avoided.  An important lesson to be learned.

In the second installment of Elder Law Today Podcast, Yale Hauptman, a practicing New Jersey elder law attorney, explains the basics of the Medicaid nursing home program. Yale explains how this needs-based program works, including the asset and income tests for eligibility. Learn what countable and non-countable assets, Medicaid transfer penalty and lookback period are and why Medicare will not cover most nursing home stays.

Yale also explains why long term care planning must be done well before entry to a nursing home becomes necessary. Congress passed significant changes to the Medicaid laws 2 years ago, known as the Deficit Reduction Act of 2005, changes that the average American is unaware of. Learn why even if you spend down your assets to the Medicaid levels you still may face a Medicaid transfer penalty.

In the second segment, Yale interviews Barbra London of Freedom Eldercare, a licensed home health care agency. Listen to Barbra and Yale talk about the types of services a home health care agency provides and common misconceptions people have about this important resource. They also discuss why, under the new Medicaid laws, hiring an aide directly, rather than through an agency, can trap the unwary and cause a Medicaid ineligibility period.

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To contact Barbra London  201-883-1200 or toll free  866-7 Freedom

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Every so often, I come across a situation that illustrates so clearly the dangers of going it alone or getting bad advice when dealing with the common issues and dilemmas that are aging in America.  I received a call this week from a son in Mississippi.  Mom and Dad, no longer able to live at home alone, moved in with Son.  They owned their home in New Jersey which they transferred to Son. 

Dad's health deteriorated to the point where he needed nursing home care.  The couple then spent down their assets and applied for nursing home care for Dad.  Meanwhile Son placed the New Jersey home up for sale.

Much to their surprise, the family was informed that the state Medicaid office denied Dad's application.  Why? Because the transfer of the home to Son caused a Medicaid ineligibility period.  Dad cannot receive Medicaid for 4 and 1/2 years.  In other words, Son must give the money back to Mom and Dad and they must spend it down before Dad will receive Medicaid.

Son said that he was prepared to pay for Dad's care.  I advised him to seek the advice of an elder law attorney in his state familiar with the Medicaid laws there before he does that.  It may make more sense for Mom to take some of the money and buy a new home which would be exempt from Medicaid.  There are other strategies that may be beneficial as well and should be explored in greater detail.

The lesson to be learned is to consult with a professional before making any decisions.  There is a maze of laws and services in this country that affect seniors.  It is easy to get tripped up by them and the cost to your family could be enormous.