10 Medicaid Planning Myths That Can Put Your Home and Savings at Risk — Part 1 of 2

Author: Jeffrey G. Marsocci

Medicaid Planning can be much more complex than Estate Planning, and that’s because the government is paying out money rather than simply regulating a process. The hopeful truth in a horrible process is that our country is not going to let our seniors go without the care they need simply, but the government will make them go as completely broke as possible before stepping in. That is, unless you know the rules.

Below is an outtake from my book The Long Term Care Solution;

In 2015, a family came in to ask for help with getting their mother approved for Medicaid. I had actually spoken with the three kids and Mom in 2010 when Mom was only in the beginning stages of Dementia. At that time, they decided to handle things on their own. Since then, Mom had declined and had recently been in the memory care unit of a nursing home for the last 5 months at about $6,500 per month, and now that her assets were about to run out they wanted help with applying for Medicaid.

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“We just need to make sure that we fill out the application correctly,” the oldest daughter said. “I know we’ve done everything right up until now, but I know how critical the application is.”

And so I started reading through the draft Medicaid application they had filled out, I got to the section on gifts, and I immediately knew there was a problem. Apparently, Mom had written checks for $14,000 to each child and grandchild for the past three years and $13,000 to each of them the year before. That’s three children, four grandchildren, and a total of $357,000 transferred in the last four years. On top of that, Mom had also transferred her house to the youngest daughter.

“Why did your Mom write all of these checks?” I asked.

“Well, because she could and she needed to spend down her assets,” the son said. “She gave each of us the maximum amount she could each year. That’s right, isn’t it?”

“Unfortunately, no,” I replied. “Those are amounts exempt from federal gift tax, not from the gifting penalties under the Medicaid program.”

“No, that can’t be right,” the oldest sister said, a look of panic starting to come over her. “Our neighbor works for an accountant and she told me that those gifts don’t count.”

“I’m sorry,” I said. “Again, it doesn’t count for gift TAX purposes, but it does count for Medicaid eligibility purposes. Let’s hold that for a minute. What about the house being transferred to you?”

The youngest daughter spoke up. “Well, that should be OK,” she said, trying to convince herself. “We were told that as a ‘caretaker child’ Mom could transfer the house to me. I helped her run errands, took her to doctor appointments, and even took out the trash because it was getting too difficult for her. That IS alright, isn’t it?”

“How long did you live in the house with your mother?” I asked.

“Oh, I don’t live there,” she said. “I was there at least two or three days a week, and then just about every day for a few hours when things started to get worse. That is OK, isn’t it?”

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I leaned back into my chair a little, bracing myself for the bad news I had to give. I started tapping in numbers into the calculator, figuring if I had to give bad news it should at least be accurate bad news. “Actually, the transfer of the house doesn’t come under the caretaker child exception because you didn’t live with your mother,” I said. “But having the house won’t disqualify your mother from getting Medicaid since it is worth only $200,000. We have to transfer the house back to her. It does mean that Medicaid can put a lien on the house, but that is better than not getting Medicaid at all.”

They looked shocked, and I decided to rip the bandage off. “If you don’t, then she won’t be eligible for Medicaid for 89 months, meaning seven years and five months. If you do, then it is only 56 months or four years and eight months. Is there any possibility all of the money she gifted to the family can be paid back?”

“What are you talking about!” the son shouted. “We don’t have that money anymore!”

“Hold on,” the oldest sister said, quieting her brother. “Are you telling us that Mom won’t be able to get Medicaid because of these gifts and moving the house to my sister?”

“Not for 89 months,” I said. “Unfortunately, unless they are undone and the refunded money is spent down correctly, the effect of these transfers means you would be better off paying for your mother’s care out of pocket for about the next four and a half years and then applying.”

The youngest daughter then asked the million-dollar question. (Well, not the million-dollar question, but close enough). “So what would’ve happened if you had helped us plan for this when we came to you five years ago?” she asked.

“We probably could have saved more than $300,000 and protected the house from a Medicaid lien,” I said.

They sat in silence.

There are a lot of myths surrounding the Care Assistance process, particularly regarding Medicaid, since the program is the most complicated and skilled care is the most costly. And unfortunately, the consequences of incorrect information are often irreversible and very, very expensive. That is why I have compiled the Top Ten Myths of Care Assistance Planning for you. If you believe even one of these is true, failing to get the right information and help can be catastrophic.

Taken from The Long Term Care Solution, by Jeffrey Marsocci, available on Amazon here: https://www.amazon.com/dp/1935896164

About the Author: Jeffrey G. Marsocci, a Hofstra University graduate with degrees in business and law, is a distinguished attorney based in Raleigh, NC, who has specialized in estate planning, estate administration, and care assistance planning since 1996. He holds a Certificate in Non-Profit Management from Duke University and is a Certified Medicaid Planner?, accredited by the Dept. of Veterans Affairs. An accomplished author, Mr. Marsocci has written several books, including The Plain English Attorney Series, and frequently conducts seminars and webinars. You can find out more about Mr. Marsocci by going to his website.

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Disclaimer: Although Mr. Marsocci is a licensed attorney, he is not your attorney, advisor nor is he a CPA or Tax Attorney. Nothing discussed or shared should be taken as financial advice for any individual case or business situation. This information is for educational purposes only and is not intended to be tax advice or as an act of solicitation and/or recommendation to buy or sell any financial instrument. Please consult with a qualified CPA or tax preparer before taking any action to ensure you’re optimizing your tax strategy.