The general public has some common misunderstandings about elder law and estate planning that we want to clear up. You will better-manage your legal planning and avoid mistakes if you understand some of these vital topics.
As Power of Attorney, do not Abuse Your Authority
We see situations where the power of attorney (“agent”) in charge of a disabled loved one’s financial affairs has made gifts to themselves or other family members; or, has sold the house at a steep discount to their child; or, has comingled the disabled person’s assets with their own so that some percentage of those funds are used to pay the agent’s monthly bills. There are multiple versions of these scenarios. They occur often enough to comment on.
Here are some of the justifications we heard from the agent:
- I didn’t know that I shouldn’t do that.
- My aunt is 95 years old and will probably die soon.
- My aunt doesn’t need the money.
- I was trying to help my son, he’s in financial straits.
- I heard that a person needs to spend down their assets to $2,000 before applying for Medicaid.
Here is what’s wrong with these choices:
- Using another person’s money as their agent for personal expenses is a breach of fiduciary duty. The Court can and will hold the agent personally accountable if the situation comes to its attention.
- This behavior is arguably taking advantage of a disabled person, which is criminal if egregious enough.
Giving away or selling assets at a discount is considered a gift under the Medicaid rules. Medicaid penalizes the applicant for making gifts. The penalty is expressed as a waiting period during which the applicant has to self-pay for their care. Medicaid won’t begin to pay until the waiting period expires. What if the applicant runs out of money during the waiting period? Now what?
Estate Planning Myths
Estate planning is a process that takes place while one is alive and able. It addresses the issues of protecting a person’s quality of life and assets during times of disability. It includes a plan for the transfer of assets at death to a person’s intended beneficiaries. For a married couple, having an estate plan in place often determines the quality of life of the surviving spouse.
There are husbands who are reluctant to engage in estate planning. I am not sure what the real reason is. Maybe it’s too uncomfortable a topic for them. Maybe they think it is unnecessary because, “my wife will get everything anyway – right?” Or, “as her husband, I have the legal authority to make financial and healthcare decisions for her if she can’t – right”? Or, “well, it’s not like I’m going to die tomorrow! Whatever the real reason is, the reluctant husband commonly uses the cost of the planning as the excuse for not going forward.
The truth is that the status of “husband,” “wife,” or “partner” does not give a person legal authority to make financial and healthcare decisions for a disabled spouse. Such authority is provided by establishing an estate plan. If there is no Power of Attorney or Advanced Healthcare Directive providing financial and healthcare decision-making authority, then the healthy spouse will have to go through the guardianship process in court. The average cost is $10,000 in fees and costs.
The truth is that when a person dies without an estate plan in place, the Delaware intestate statute (relating to a person who died without a will) determines who gets what and when. For example, a surviving spouse does not necessarily inherit 100% of the assets the deceased spouse solely owns if children from a different relationship survive that person. Take the family home for instance: if it was solely owned by the deceased spouse, then the surviving spouse receives only a life estate. The remainder interest goes to the stepchildren. The surviving spouse cannot sell the house without the permission of the stepchildren.
The lesson here is that not having an estate plan in place can be costly on many levels for a caregiving spouse whose loved one suddenly loses their independence. It can also contribute to a surviving spouse’s financial impoverishment. Delaying your estate plan is “penny-wise and pound-foolish.”
Harmful Myths About Long-Term Care Medicaid
The word on the street is that Long-Term Care Medicaid is a government benefit for the poor. This misconception sound like this:
- “Medicaid is not for people who have worked their entire life and saved money for retirement.”
- “A person must spend all their savings before applying for Medicaid.”
- “Medicaid is for poor people.”
These are harmful myths.
The truth is that Long-Term Care Medicaid is a government benefit for disabled people, not the indigent. In this context, “disabled” is defined as requiring assistance with at least one activity of daily living (ADL), the cost of which will exceed their income. This medical requirement for assistance is a mandatory prerequisite for Long-Term Care Medicaid qualification. This is why the benefit is for the disabled.
If the medical requirement is in place, there are limitations on assets and income to qualify financially. The general financial qualification rule anticipates that an applicant with excess assets will spend money on goods and services, depleting funds down to the set limitations, and then apply for Medicaid.
There are exceptions to the general rule that allows an applicant to strategically move assets into the possession of another person and have the transfer treated as if the applicant spent those assets. The amount of transferred assets becomes protected in the sense that the person in possession of the assets can choose to use them for the future benefit of the applicant. 1
The fact that the Long-Term Care Medicaid rules permit asset protection determines when to file the application for benefits. The time to file is when the medical need for care is in place. This is when the applicant still has all of their assets. The applicant should not delay the application until they have spent the majority of their assets. Assets are protected by completing the Medicaid application process.
Do Elder Law Attorneys Help Clients Hide Assets for Medicaid Approval?
Fifteen years ago, when I started my Elder Law practice, I attended a marketing function at a local nursing home. I was talking with a social worker and sipping coffee. Out of the corner of my eye, I saw a woman approaching us who I learned later was our host for the meeting and director of the facility. She carried herself as if on a mission. The Director stepped in close and pointed her finger at me, declaring “I don’t like you. You help people hide assets to qualify for Medicaid.” Before I could respond that “nothing is further from the truth,” she disappeared into the crowd. The social worker and I were stunned.
In reality, the Long-Term Medicaid application process is based on full disclosure and honesty. Under the regulations, Medicaid can deny coverage permanently to an applicant who lies or hides assets. It is a crime to lie to Federal officials; just ask Martha Stewart.
When seeking Medicaid approval, please know that Medicaid can search ALL government, employer, and financial industry databases for assets and items of income. Also, Medicaid can require the applicant to produce five years of financial records. The Medicaid worker traces the flow of assets in and out of accounts very carefully. If you fail to declare assets or income, Medicaid will ultimately find out, one way or another. Then, the applicant is in trouble.
Elder Law attorneys understand it is only through full disclosure and transparent processes that the maximum amount of assets can be protected for Long-Term Medicaid qualification purposes. It is to the advantage of the applicant to reveal assets rather than to hide them. We require honesty from our clients. We must fire clients who lie to us.
The Five-Year Look-Back Period is a Discovery Tool
A big misconception is that the five-year look-back period is a barrier to qualifying for Long-Term Medicaid. We hear clients say, “I can’t qualify for Medicaid because they will look back five years and see that I have assets.” Another version is that “I have made gifts to family and the Medicaid penalty period is five years.”
Here is how the five-year look-back rule works. Every applicant has a look back period. It is triggered when the application is filed. The applicant is required to self-report all gifts made (which translates to, “any transfer of an asset for less than full market value”) during the five-year period leading up to the application date (hence the look back).
The look-back rule is a means of discovering an applicant’s use of gifting to spend down assets to the set financial limit. The Medicaid benefit would disappear if applicants simply could transfer all of their assets to family in order to qualify.
The Medicaid regulations attempt to eliminate gifting by penalizing the applicant for doing so. The penalty is expressed as a waiting period during which the applicant must use their assets and income to pay for care until the period ends. The penalty is calculated on a formulae of total gifts made in the past five years divided by $12,000 (the 2024 divisor). The quotient is usually stated in months or days. The penalty period is triggered by filing an application and receiving a provisional approval from Medicaid. When the penalty period ends, Medicaid will begin to pay for care.
For most applicants, a history of gifting assets does not overly complicate their application. Problems begin when total gifts exceed the divisor amount ($12,000). For every $12,000 in prior gifts, the applicant must self-pay for care for one month. If the applicant’s cost of care is $15,000 per month, a significant history of gifting is problematic. This is why giving your house away to an adult child is a very bad idea.
1 CAUTION: The strategy of transferring assets to another person so that the transfer is treated as having spent the assets under the Medicaid rules has to take place under the guidance of an Elder Law Attorney. Advice on how to meet the asset and income limitations under the Medicaid regulations is complicated and involves the practice of law.
