Are You Making Gifts You Aren’t Even Aware of? (Part 2)

We were discussing Eddie’s problem last week.  His Dad needs nursing home care and, at a cost of $11,000 per month, Eddie was concerned that there would not be anything left for Mom if he didn’t look to qualify for Medicaid quickly.  However, the family was totally in the dark about how Medicaid works.  So, when I explained to him that there could be a Medicaid penalty period, Eddie panicked.  “Can you help me”, he pleaded.  Here’s what I told him.

 The first things we needed were the last 5 years of statements for every asset that Eddie’s parents owned.  We then looked through each one to determine what amounts of money had been transferred from their accounts that Medicaid could consider “transfers for the less than fair value”, that is, transfers for which they did not receive something of equal value back in product or service.  The monies Mom and Dad sent to Ecuador to support family members counted as transfers but we wanted to know what else there might be. 

 Eddie admitted he had no idea since his parents didn’t keep good records and they never discussed it with their 3 children.  Our paralegal painstakingly went through what seemed like a mountain of documents.  She found a total of $40,000 of cash withdrawals over a period of 5 years.  “Not all of that money was sent to Ecuador,” Eddie explained.  “My parents paid for things in cash.  They didn’t believe in credit cards.”    I told him if we could prove what some of that money was used for, by documentation (ie. receipts), we could knock that $40,000 down.

 Our goal was to get that number as small as possible because that is what Medicaid divides by another number to tell us how long the Medicaid penalty would be, how long Mom would have to pay privately for Dad’s care before Medicaid would kick in.  As it turned out, some of the cash was used to pay repairs on the home.  I had Eddie contact the contractor to get an invoice.  That was $10,000 right there.  We also determined that $7500 had been sent to Ecuador 4 years and 10 months ago.  I told Eddie that as long as we apply for Medicaid more than 5 years from the date of those transfers they would fall outside the lookback and we didn’t need to disclose that to Medicaid.

 That left $22,500 unaccounted for consisting of numerous withdrawals of varying amounts from many different accounts over the 5 year period.  I told Eddie that we should file for Medicaid and let’s see what they come up with.  I was confident their number wouldn’t be bigger than ours because I was very conservative in terms of what could be considered a transfer for less than fair value.  But I also know that much of this is subjective and Medicaid may “let certain transactions go”.  That depends on the caseworker, his/her caseload, the timing of the application and my ability to walk the caseworker through our application and the documents we provided.

 At worst, the penalty would be 3 months, meaning Eddie’s parents would have to pay an additional $33,000 at the nursing home’s private pay rate of $11,000 per month. But Mom still has a house worth $300,000 so, I explained, we could work out an arrangement to pay the nursing home from the proceeds of the house if she sells it or have her take a reverse mortgage or have one of the children loan her the money.

 It all made sense to Eddie and that’s what we did.  Medicaid in fact, found $14,000 in uncompensated transfers, resulting in a 2 month penalty.  Eddie was pleased.  Mom would have to pay the nursing home $22,000 but Medicaid then covered the rest.  We ended up saving her at least $40,000, the amount of money she would have had to pay if the penalty had been as much as 6 months or more.  Why?  Because, if Eddie had filed the application himself he would have been totally unprepared to provide the documentation Medicaid needed and to plead his case.  Being at the mercy of the State who knows how high that penalty would have been?