The Listen to Lawrence Letter – Medicaid: Establishing a “Pattern of Giving”

Dear Clients and Friends:

Did you know that not every transfer results in a Medicaid penalty? Read on…

CLIENT QUESTION:

I remember that several years back when I was first learning about Medicaid eligibility and nursing homes that it was said that if you had a pattern of giving that clearly had nothing to do with trying to divest your funds that Medicaid would not disqualify those transfers. I don’t know for sure if that was accurate but if it was, is it still true? For instance, I put $6000 a year into my daughter’s Roth IRA every year to be sure she is secure in retirement if SS is no longer as high a benefit as it is now. Fortunately, she recently got a very good paying job with matching 401(k) so this year will be the last year I do this. My concern is that if I have to go into a nursing home and drain the roughly $190,000 in non-retirement accounts that I have before the five years are up whether or not they would consider the $6000 transfers against me.

MY RESPONSE:

We have been talking for years about transfers and Medicaid eligibility. You all know that if you gift assets (what we call uncompensated transfers) to your family, then there is a Medicaid penalty. The penalty is that you are not eligible for Medicaid for a certain period of time, roughly one month for each $14,000 you transfer within the lookback period. Having said all this, there are exceptions to the rule where no penalty is assessed.

One exception is if the asset was transferred for some reason having nothing to do with protecting assets from Medicaid. Practically speaking, if you add $6000 each year to your child’s Roth IRA to help them in their retirement, that should qualify for the exception.  An important factor here, I assume, is that you have other assets that you are not transferring, leaving the $6000 an isolated event each year. On the other hand, if you transferred your house and other assets to a trust or otherwise, plus you transferred $6000 to a child’s Roth IRA, then the $6000 would be penalized because it would be characterized by the overall strategy of asset protection.

Other clients have helped children and grandchildren with house payments, debts, college expenses, etc., all having nothing to do with protecting assets from Medicaid. These should be considered exempt as well.

But wait! You are assuming that Medicaid is fair and rational. More to the truth is that Medicaid is staffed with terrific people who are overworked and underpaid, and who MAY see a transfer and simply deny coverage by imposing a penalty. Once we get the denial, we can get on the phone with them and see if they will reconsider their decision or we may have to bring a fair hearing. A fair hearing is an administrative proceeding where we essentially appeal their decision. This is costly and takes time and has proven hard to win.

One of the most important factors is how healthy you are when you are helping your family. The older and sicker you are, the more it looks like you are trying to protect assets from Medicaid.

Under your facts above, it appears to be a long-time pattern, started when you were younger and healthier, and not part of an overall plan to protect your assets. You should be fine, but don’t be surprised if you are penalized by Medicaid anyway.

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Until next time,

peace, health and happiness,

Lawrence Eric Davidow