When Medicaid Planning and Asset Protection Goes Wrong
With people generally living longer, healthier lives, distant from established family and friends, many do not have a support system in place in the event of a serious medical situation. Unfortunately, seniors are often lured by mailings and advertisements related to financial planning and long-term care planning, frequently sent by insurance agents, Medicaid planners, and even nursing homes and assisted living facilities. But none of them are subject to much, if any, regulation to insure that they are qualified to provide advice on this intricate type of legal work. Caution should be exercised to rely only on advice from an attorney that is board certified in Elder Law. Board certification means that the attorney has taken substantial course work every year, handled dozens of cases in that area of law, spent the majority of his or her time practicing in that area of law for at least five years, been peer reviewed by other board certified attorneys, and has passed a full day written exam. With the exception of the exam, which is taken only once, all other requirements must continue to be met and an application for recertification filed for review every five years. Asset protection specifically refers to the process of managing assets with the intent to put them beyond the reach of creditors and future potential financial threats. For seniors in particular, Medicaid planning is a type of asset protection done to enable an individual to qualify for Medicaid assistance for nursing home care costs. There are many strategies, sanctioned by law, to accomplish this, but the process is complex and must be carefully done within the strict limits established by both state and federal law. An individual is highly misguided to believe that they can handle these arrangements on their own, relying on information they’ve seen online as their guide. Mistakes made can be extremely costly. Mistakes might prevent eligibility for years. Even mistakes that can be remedied often aren’t identified until months after residence in the nursing home began, and when they are fixed the assistance won’t usually be retroactive. This might result in several months during which the individual will be required to pay the full cost of the nursing home care. An overview of some options for transferring assets, and the consequences of making an improper transfer, will follow below.
Essential Aspects of Medicaid Planning
There are really three critical stages in Medicaid planning. They are all very important and must be addressed at inception. The first stage is initial eligibility. The second stage of planning is the continuation of eligibility, and the third stage is estate recovery.
If someone if faced with the need for extended nursing home care, the planning process will address many issues. As you will see in the remainder of this paragraph, the process is too complex to give advice as to how it should be done in any specific case. All of the details of a case have to be identified and only then can a plan be properly generated. However, in every case, a determination will be made of which assets are not countable at all by Medicaid such as a residence. But in some cases retaining the residence may be undesirable due to mortgage payments, taxes, insurance and maintenance, all of which will continue. On the other hand, in other situations the client might benefit by actually obtaining a new mortgage debt. Next, there may be countable assets that can be converted one way or another into non-countable assets. Some assets can be transferred to certain people without creating any period of ineligibility. After considering all of these options, if the remaining assets still exceed Medicaid limits, there may be ways to spend assets for funeral expenses, a personal service contract, loans to others, and various other options. Beyond that we may look to depositing assets into a pooled trust or special needs trust, and in many cases we may even acquire rental property. If the Medicaid applicant has a spouse that will remain in the community, there are many additional possibilities and challenges to consider especially with respect to ways to maximize the income of the community spouse. The foregoing overview illustrates that many options must be considered, and in a lot of cases, multiple options are strategically employed. Keep in mind also, that while there may be multiple possible avenues to achieving initial eligibility, it is critical to understand the advantages and disadvantages of every choice and implement the very best plan for your particular circumstances.
The transfer of assets is often done before obtaining professional advice, and can be very problematic. A transfer in exchange for fair market value, is permissible, but a transfer for less than fair market value will include a gift that might create a period of ineligibility. Fixing transfers that would result in a period of ineligibility is permissible but may be difficult or even impossible. A transfer that is not “complete” and leaves the original owner in control or as a beneficiary, will likely be disregarded altogether by Medicaid, resulting in the individual still having these as countable assets. There may be opportunities to transfer certain assets to specified individuals, without incurring any period of ineligibility. Once again, professional guidance is important to avoid making costly mistakes.
As alluded to above, if asset transfers do not conform to the rules, they may cause ineligibility or, in a worst case scenario, even be deemed fraudulent. Anyone applying for Medicaid will have their finances carefully examined. If an application is flagged, it could result in a delay for months, or a partial or complete denial, leaving a person responsible for substantial amounts of nursing home expense.
The second stage of the planning process is making sure that Medicaid eligibility that has been obtained, continues. This is especially essential if there is a community spouse. The concern is that the community spouse could predecease the Medicaid client. Assets that remained jointly titled by the Medicaid client and the community spouse, would revert to the Medicaid client if the spouse dies, and very possibly cause the loss of eligibility. Also, in addition to the proper titling of assets, if the community spouse dies first, the Medicaid client will be entitled to at least a significant percentage of the estate of the community spouse referred to as the “elective share.” Once again, this will result in ineligibility. In these situation we may employ a qualified special needs trust, or an enhanced life estate deed to protect these assets.
The third stage of the planning process is to properly protect the assets after death from “estate recovery” by the State for the Medicaid dollars spent. This also is a vital step in Medicaid planning and should always be done in conjunction with the initial planning. Other non-attorney Medicaid planners may not bother to advise clients in this area. The heirs may later find, to their dismay, that the estate is saddled with a huge debt to the State of Florida that might wipe out all or a substantial part of the assets that were protected in the first place!
Contact an Elder Law Attorney
An application that is submitted by an attorney with a known history of doing legally proper planning, that contains all of the required back-up documentation properly organized, with a comprehensive narrative explanation of the planning that was done and addresses all unusual details that could result in a flag on the file, is your best assurance for a speedy approval.
These situations are not easy and can induce anxiety. Often there are misunderstandings as to what the rules are. Proper, reliable advice and planning by a board certified elder law attorney alleviates much of the anxiety and gives peace of mind to you and your loved ones. Attorney William Rambaum has the experience and credentials you need to protect you and your family. If you live in the Clearwater or Oldsmar area, contact his office to schedule an appointment.