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Don't believe this Medicaid myth

Published On: Aug 23 2013 11:56:32 AM CDT
senior citizens

Pierre Amerlynck/SXC

By attorney Joanne Fanizza, Special to THELAW.TV

Medicaid is a highly specialized area of law that, unfortunately, tends to generate a lot of rumors and misinformation.

As an elder lawyer in New York and Florida, I have seen and heard it all in this area. But the most damaging bad information involves transferring assets to qualify. Done incorrectly, this action not only could cost you in Medicaid eligibility, but it could subject those making the transfers to criminal charges as well.

What if a parent suddenly becomes gravely ill, they do not have long-term care insurance, they have not done advance Medicaid planning, and they need Medicaid to pay for permanent nursing home care? Is it okay to put all of your parent's assets in your own name because then Medicaid will see that they don't own anything and they will be able to qualify for Medicaid right away?

NO! Not only wrong, but this Medicaid myth is rife with problems that could subject those in need -- and their families -- to penalties, disqualification or, worse, criminal charges.

Whether a needy senior will immediately qualify for Medicaid to pay for nursing home care depends on whether they did advance Medicaid planning or whether their current financial status qualifies them at the outset. The truly destitute do not have problems qualifying. It is the lower middle class -- those with modest assets they are trying not to lose entirely, especially if they have a well spouse or children -- who face a more challenging task to qualify.

Congress has created methods by which those who are not destitute, but not rich, can attempt to shield some or all of their assets in order to qualify. In the best-case scenario, someone who plans in advance can create a Medicaid-qualifying trust, transfer all their assets into the trust, and wait out the five-year "lookback" period. When the individual can show they haven't owned any assets for at least five years (because the trustee of the trust owns their property, and the Medicaid applicant cannot be the trustee), they should qualify for Medicaid.

It is in the worst-case scenario -- when a senior fails to plan at all, or what we in the industry call "the crisis Medicaid case" -- that troubles arise. And this is where those rumors abound. Because Medicaid looks back five years into the individual's financial history to determine what they own(ed) and where it went, any transfers of assets into another person's name without adequate compensation will earn the Medicaid applicant a penalty period, which means they will not qualify for coverage for a certain period of time, based on an established formula.

The worst thing a child can do is transfer their parent's assets out of the parent's name thinking Medicaid won't know, or not report all assets, thinking Medicaid won't find them -- both of which are tantamount to defrauding Medicaid and could subject that person to criminal charges. Different rules apply to spouses. The fact is, Medicaid does a thorough review of every applicant's financial background, referencing and cross-referencing documents, checking all financial transactions, bank accounts and other assets, and will determine if money has been transferred. Money or assets improperly transferred will create a penalty period, or period of ineligibility. In a worst-case scenario, Medicaid could refer those involved to the local district attorney for prosecution.

Congress has authorized several methods by which even "crisis" cases can shield some of their assets. Some examples include purchasing an irrevocable funeral trust, investing in certain improvements in the home, making gifts with promissory note paybacks, and entering into personal services contracts with family members. The only way to know if you or your loved one can shield some or all of their assets is by consulting an elder lawyer who specializes in Medicaid planning.

The author, Joanne Fanizza of Law Offices of Joanne Fanizza, P.A., practices elder law, probate and estate administration, real estate, corporate, and commercial law in Farmingdale, N.Y., and Fort Lauderdale, Fla.

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