{"id":2792,"date":"2023-05-15T09:42:28","date_gmt":"2023-05-15T09:42:28","guid":{"rendered":"https:\/\/alcleanscarpet.site\/Weatherby\/2023\/05\/15\/the-perils-of-do-it-yourself-medicaid-planning\/"},"modified":"2023-06-06T07:46:19","modified_gmt":"2023-06-06T07:46:19","slug":"the-perils-of-do-it-yourself-medicaid-planning","status":"publish","type":"post","link":"https:\/\/alcleanscarpet.site\/Weatherby\/the-perils-of-do-it-yourself-medicaid-planning\/","title":{"rendered":"The Perils of Do it Yourself Medicaid Planning"},"content":{"rendered":"

As we stress often to families in our practice, planning for and dealing with the significant challenges and difficulties of long-term care is a daunting process.\u00a0 The complexities of very complicated state and federal Medicaid laws and regulations present many pitfalls for those who try to engage in that process on their own without working with a competent elder law attorney.\u00a0 A recent Medicaid case from New Jersey is an example of a family that tried to go through the process on their own and are now dealing with some pretty nasty consequences.\u00a0 See C.W. v. New Jersey Division of Medical Assistance and Health Services<\/span>, NO. A-02352-13T2 (NJ Sup. Ct. App. Aug. 31, 2015).<\/em><\/p>\n

The facts are as follows: \u201cC.W.\u201d was a 90 year old New Jersey resident who moved into a skilled nursing facility in 2007.\u00a0 The following year, she transferred her home and $540,000 in assets to her children, which together were worth approximately $864,000.\u00a0 The following year C.W. applied for Medicaid benefits.\u00a0 Not surprisingly, the state Medicaid authorities imposed a penalty of 10 years and 4 months before they were willing to begin paying her nursing home costs.\u00a0 At that point, her children tried to fix the problem.\u00a0 They returned $235,000 to C.W. who in turn paid that amount to her nursing home.\u00a0 Then, her children returned the home to her, which was then sold.\u00a0 Oddly enough, the sale proceeds were then deposited into an account in the children\u2019s names, not in C.W.\u2019s name, with the children executing a written agreement to transfer the amount of C.W.\u2019s care cost to her each month.\u00a0 C.W. then reapplied for Medicaid and was again denied as before.<\/p>\n

Let\u2019s consider each of the many mistakes made by C.W.\u2019s family and also consider how the results would have been a little different if C.W. had lived in Connecticut.\u00a0 Under the Medicaid rules, when a Medicaid penalty period is assessed, it takes the form of a time period before which benefits will be paid.\u00a0 The simple mathematical formula takes the total gifted amount and divides it by the average monthly cost of private-paid skilled nursing home in that state.\u00a0 As of July 1, 2015 in Connecticut, that divisor amount is now $12,170.\u00a0 Dividing $864,000 by $12,170 would result in a penalty period of 71 months.\u00a0 Note: for C.W.\u2019s actual case, New Jersey\u2019s monthly divisor happens to be quite a bit lower than Connecticut\u2019s and her application was submitted 7 years ago so costs have risen since that time.\u00a0 That is why her actual penalty period was considerably different than our hypothetical for a Connecticut 2015 Medicaid application.<\/em><\/p>\n

What were some of C.W\u2019s mistakes?\u00a0 The first mistake was in not understanding the rules of Medicaid\u2019s 60 month look back period.\u00a0 When you apply for Medicaid, the administrative authorities are allowed to do a complete financial audit of the Medicaid applicant\u2019s financial activities over the previous 60 months.\u00a0 Whatever was done earlier than 60 months before the application is never considered and has no effect whatsoever on Medicaid eligibility.<\/p>\n

There are situations where someone is fairly healthy when they engage in asset protection planning but then suffers unanticipated health issues that force a move to a nursing home much sooner than they ever thought they might need it.\u00a0 That is clearly not the case for C.W. as she was already in a nursing home when she started gifting away her assets.\u00a0 In C.W.\u2019s case, applying for Medicaid in 2008, she would have had no problems if she did the exact same gifting of assets in 2003 or earlier.\u00a0 Alternatively, the family could have considered delaying the Medicaid application for a few years and instead, privately paying the nursing home from the gifted funds until the 60 month look back period elapsed.<\/p>\n

The second mistake was in transferring C.W.\u2019s home out of her name.\u00a0 When a single individual applies for Medicaid, their home may be considered an exempt asset if they have a reasonable expectation of returning to the home within a relatively short period of time (at least initially, but the rule might require the home to be sold later on depending on circumstances<\/em>).\u00a0 As soon as C.W. transferred the home, it ceased to be an exempt asset for purposes of her eligibility.\u00a0 Then, after her children conveyed the house back to her, it was sold.\u00a0 Once the equity in the home is converted to cash, it ceases to be exempt.\u00a0 At that point we might also question why the sales proceeds were put into the children\u2019s\u2019 bank account, rather than staying in C.W.\u2019s account, because she therefore ultimately re-gifted that amount back to the kids.<\/p>\n

Also, it is important to note that for income tax purposes, once C.W. transferred the house to her children, the opportunity to claim an exemption from capital gains tax on the sale of the home could have been lost.\u00a0 If the house had been sold by the children instead of being transferred back to C.W. first, and assuming that the house sold for $324,000, and further assuming for our purposes that C.W. had paid approximately $150,000 for the house, then capital gain of $174,000 would have to recognized by the children upon the sale of the home.\u00a0 At a probable 15% capital gains tax rate, there would be $26,100 in capital gains tax due to the IRS because of the sale.\u00a0 In Connecticut there would also be tax owed to the state of about 6% for another $10,440, for total tax costs of $36,540. Since C.W. sold the house herself, however, she could have qualified for the \u201cprimary residence\u201d exemption for sale of the home, and paid no income tax. There was one thing that it appears C.W. and the children did right from an income tax standpoint, which was transferring the house back to C.W. before selling it.<\/p>\n

Lastly, in Connecticut, C.W.\u2019s children could have been held personally liable for C.W.\u2019s nursing home costs under a relatively new statute which allows nursing homes to sue the recipients<\/em> of gifts that cause a penalty period for Medicaid coverage.\u00a0 Under Connecticut General Statutes Section 17b-261q, if a person applying for Medicaid transferred assets within two years of the time that they apply for Medicaid, and they incur a penalty period due to that transfer, then the person who received the asset can be sued by the nursing home for nonpayment of their fees.<\/p>\n

Clearly, good advice from a qualified elder law attorney could have made a big difference in the costs ultimately borne by C.W. and her family for her long-term care needs.\u00a0 Please call us at 860-769-6938 if you have any questions about the issues presented above or if you care to discuss any other planning issues with us.<\/p>\n

Elder Care Lawyers, Estate Lawyers – CT<\/strong><\/h1>\n

Weatherby-Associates<\/h2>\n

The Perils of Do it Yourself Medicaid Planning<\/a><\/p><\/blockquote>\n