Best Practices if Nursing Home a Possibility

Not too long ago in this column, we discussed downsizing and simplifying your personal and financial life. The reasons you may want to do so is to make life easier for you and your loved ones. A smaller home or apartment makes running the household much easier and less time consuming.

Similarly with your investments and financial accounts. By consolidating and simplifying these accounts, they are easier to maintain and keep track of and you spend less time monitoring and balancing these accounts on a monthly basis. Not only may it be wise to downsize and simplify, you also have to be careful about gifting and the transfer of assets if there is a possibility of a nursing home admission.

If you went into a nursing home, would you rather have your hard-earned assets go to your spouse or other loved ones or to the nursing home. When we ask our clients this question, we rarely get anyone saying that they would rather benefit the nursing home than their loved ones.

There is going to be a lot a people who will attempt to give you advice about how to qualify you or a loved one for Medicaid to pay for nursing home care. This advice usually focuses on the transfer of assets or the payment of expenses. We regularly find that although this advice is well intentioned, unless it is provided by a knowledgeable elder law specialist, it is usually only partly true.

And when it is only partly true, it may result in many months of Medicaid ineligibility to pay for nursing home care. Whenever you make a gift or other transfer to a loved one for less than fair and adequate consideration, and it is made within five years or sixty months of a Medicaid application, those gifts or transfers are still considered available resources to pay for your nursing home care.

Bargain sales to loved ones could be considered part gift. For example, if you sell the family cottage worth $100,000 to your daughter for $60,000, there would be a $40,000 gift. Or if you pay your grandson $200 per week to mow your lawn when a lawn service would have been $50, there would be a $150 weekly gift.

These gifts or transfers are called divestments, and result in a divestment penalty period during which Medicaid will not pay for your or your loved one’s nursing home care. When you file the Medicaid application, you have to list all these gifts and transfers and provide documentation, such as the cancelled checks or other papers. The Department of Health and Human Services will consider all undocumented checks to loved ones as gifts which are divestments resulting in a divestment penalty period.

For example, it may be easy to just write your son Billy or daughter Suzy a weekly or monthly check so that they can pay for your groceries and other household expenses. Or you just make Billy or Suzy a joint owner on your checking account and they regularly write checks to themselves or to cash to pay for your bills and other expenses. However, if Billy or Suzy did not keep track of the receipts for everything that they spent on your behalf, those checks will be counted as gifts to Billy or Suzy which are divestments.

A much better option to writing checks to Billy or Suzy or to cash would be to name Billy or Suzy as financial agent in your financial power of attorney and then they can be a signer on your checking account to pay your bills as necessary. The checks then would be written to the grocery store or the department store to pay your bills and expenses and not directly to Billy or Suzy. Those checks would not be considered gifts to Billy or Suzy which result in a divestment penalty period.

There would be a similar result if you “paid” Billy or Suzy to care for you. As we have discussed in a recent column, you must properly document your agreement with Billy or Suzy in a comprehensive care contract before they provided any services to you. If you do not, all those payment to Billy and Suzy to take care of you within five years of the Medicaid application will also be considered gifts to Billy or Suzy which result in a divestment penalty period.

Because of this Medicaid five year or sixty month look-back period, you also have to document in your Medicaid application all closed accounts or transfers between accounts. If they are not properly documented, they may be considered as gifts to loved ones that also result in a divestment penalty period.

Banks and other financial institutions are regularly running promotions to get you to move your bank accounts to them. If you transfer funds  to them into a new account and keep the account open for a period of time, such as ninety days or six months, you get a toaster, or a $50 or $100 credit in your account. Or maybe that CD will earn2% for the first ninety days instead of 1%.

If those transfers or account closures were made within five years of the Medicaid application, you have to document them in the application. We had on case in which a client in a one year period opened and closed about a dozen bank accounts and made multiple transfers between accounts in order to receive these bank incentives. It added about 100 pages to the Medicaid application and cost the client an additional $1,500 in legal fees to account for and properly document all the closed accounts and transfers, all for about $300 in bank incentives.

Do not throw out those monthly bank or other account statements after they are balanced. You may have to provide documentation. Keep records for any completed transaction for at least seven years. Ten years would be better. For any assets you currently own, hold on to those records from the date of asset acquisition to at least seven years after you dispose of that asset.

If you are married and you or your spouse go into the nursing home, in the Medicaid application, you have to document all of the assets that either of you owned on the first day that you or your spouse received continuous custodial care for at least thirty days since 1989. That custodial care could be in a hospital, rehabilitation facility or nursing home, or a combination of these facilities. This is called the snapshot date.

When you or your spouse have this thirty day custodial care period, do not throw out those financial records. Hold onto them. We recently had a case in which the snapshot date was in 1992. You can only imagine how difficult it was to reconstruct our clients’ financial picture and obtain documentation from more than twenty years ago.

If nursing home admission is a possibility, do not throw out those financial records and consult with a knowledgeable elder law specialist. Your spouse or loved ones will be thanking you later.

By: Matthew M. Wallace, CPA, JD

Published edited June 12th, 2016 in The Times Herald newspaper, Port Huron, Michigan as: Best Practices if Nursing Home a Possibility

Leave a Reply

Your email address will not be published. Required fields are marked *