Elder Law of Louisville's Blog

Thursday, December 2, 2010

13 Medicaid Mistakes

1. FAILURE TO TAKE ADVANTAGE OF THE MANY MEDICAID SPEND-DOWN ALTERNATIVES:  So many people are either unaware, or fail to take advantage of, the many Medicaid spend-down alternatives. When couples are told they have a spend-down to accomplish, they automatically assume they have to spend their money on the care of the patient before qualifying for Medicaid. Nothing could be further from the truth. There are a whole lot of strategies (at least 17 we have identified) you can employ to satisfy the Medicaid spend-down requirement without actually spending the money on care – strategies you can use to protect assets from Medicaid.

2. GIVING AWAY ASSETS WITHOUT A PLAN:  One of the most common "do-it-yourself" techniques is to just give assets away. Although making gifts can be an important part of an effective Medicaid asset protection plan, doing so without a plan, or, worse yet, without fully understanding the consequences and ramifications of such action, can be financially devastating, particularly since the passage of the Deficit Reduction Act (DRA) in 2006. Fortunately, the Medicaid rules which can “punish” an applicant for transferring or gifting assets in anticipation of Medicaid, also have, if you understand how the system works, significant opportunities for protecting assets. In many ways it’s the "half empty or half full" concept.

3. ASSUMING THE ANNUITY YOU BOUGHT YEARS AGO WILL PROTECT ASSETS FROM MEDICAID:  Over the past few years, many couples have purchased annuities based on assurances from the agent that the product would "protect" their assets from Medicaid, should one of the spouses ever need to go into a nursing home. All you had to do was "annuitize" the annuity and it would allow you to immediately qualify for Medicaid, while protecting those assets. Well, guess what? The rules have changed. Under the new Deficit Reduction Act (DRA), passed by Congress in 2006, the great majority of annuities that might have provided some protection in the past are no longer effective for such purposes. Most annuities already in existence, and all but a very few of those available for purchase today, do not meet the specific requirements detailed in the DRA. (Note: the key word here is "most." There are some new annuities (referred to as DRA Medicaid-compliant) that, when used properly, can provide significant protection for assets.)

4. ATTEMPTING TO HIDE ASSETS FROM MEDICAID:  Sometimes families will attempt to "hide" assets, or at least conveniently "forget" about them. After all, how is Medicaid going to find out about that piece of property that you gave to your son last year? Keep in mind that failure to disclose assets in order to obtain Medicaid benefits is a crime (Medicaid fraud) and could result in prosecution, as well as legal action to recover the cost of Medicaid benefits obtained fraudulently. It is just not something you want to even consider.

5. HAVING NO PLAN OR WAITING TOO LONG TO TAKE ACTION:  Every year in this country, hundreds of millions of dollars are lost to the nursing homes or other care facilities simply because families stood back and did nothing. Frequently it is wrongly assumed that once the patient is in the nursing home, nothing can be done. In almost all cases, though, most, if not all, of the couple’s assets (the amount depends on the circumstances) could have been saved for the spouse, but it would have required taking effective action before the money was gone. So often couples are simply overcome by events. They’re aware that the money is pouring out of the estate, but they are like deer caught in the headlights – frozen – unable to act. Of course, without getting an education and developing a real plan, what could they do anyway? Common sense tells you that the longer you wait to take action, the more money that will be lost and, therefore, the less that can be protected from Medicaid.

6. DEPENDING ON UNEDUCATED ADVICE:  It is absolutely amazing how many people will rely on the advice of his or her neighbor, brother-in-law, insurance agent, anyone except an attorney whose practice is focused on Elder Law.  These are the same people that wouldn’t think of making an investment decision without first consulting their financial advisor, but when it comes to Medicaid and the potential loss of tens or even hundreds of thousands of dollars they are more than willing to base their decisions (or lack of decisions) on hearsay and guesswork. Legitimate Medicaid planning attorneys are few and far between, but there are some out there.

7. TAKING THE ADVICE OF THE MEDICAID WORKER:  Many a plan has come to a grinding halt (or never even got started) because the family listened to the local Medicaid worker. Remember, your goals and the Medicaid agency’s goals are not the same. The Medicaid worker’s job is to evaluate the Medicaid application and determine whether an applicant is currently eligible for Medicaid benefits. It is not their job, nor are they usually interested, in helping you save assets. Besides, they are not allowed, by their agency, to give financial or legal advice. So when the worker says: "You have to spend the money on care," that is not only not in your best interest, it is blatantly false. Do not assume that the Medicaid worker, no matter how nice he or she seems, is on your side.

8. ASSUMING A LIVING TRUST WILL PROTECT ASSETS FROM MEDICAID:  Millions of seniors have purchased Living Trusts. Often times they assumed, or were led to believe, that a Living Trust would somehow provide their assets with protection from Medicaid. Although a properly drawn Living Trust may provide many benefits, protection from Medicaid is typically not one of them. Assets in a revocable Living Trust are still available to the patient and/or the spouse, and so therefore, in most cases, are still considered countable resources (for Medicaid qualification purposes).

9. PICKING THE WRONG ATTORNEY:  Often times, when long-term care strikes, the first stop is the attorney’s office. The problem is that more times than not, it’s the wrong attorney. There are only a few attorneys in the Louisville, KY area who understand the complex Medicaid rules.  The problem, for the most part, is that the average individual wouldn’t know the difference. Getting the wrong Medicaid advice, no matter how well intentioned, can be extremely costly, well beyond the attorney’s fees.

10. APPLYING FOR MEDICAID TOO SOON:  Often times, a patient who does not yet qualify for Medicaid will make application for benefits just to “see if I qualify.” After all, what’s the worst they could tell you…you don’t qualify? Well, there is something a lot worse. There are situations where families are attempting to legally protect assets, but the simple act of applying for Medicaid as little as one day too soon could result in the patient being disqualified from Medicaid benefits for years into the future. What they are doing is confusing Medicaid’s transfer disqualification penalty with the look-back period. This may be one of the easiest pitfalls to avoid, once you understand how the Medicaid system works. And although most patients are not affected by this technicality, for those that are, it can be financially devastating.

11. FAILURE TO AVOID ESTATE RECOVERY:  On occasion, families will, either through planning, or by "accident," assume they have protected some significant amount of assets while getting a spouse qualified for Medicaid. Only later, after both spouses have passed away, does the Estate Recovery Unit from the state Medicaid agency show up to "recover" every last cent of the benefits provided. In most cases, proper actions taken early on could have avoided the entire Medicaid Estate Recovery process.

12. MAKING TRANSFERS WITHOUT PROPER AUTHORITY:  Sometimes, in a family’s desperation to protect the assets of a patient who is no longer mentally competent, they will take actions (such as transferring assets, changing deeds and vehicle titles, etc.) for which they have no authority to accomplish. For example, transferring property using a Power of Attorney that doesn’t provide such authority; having the patient sign his/her name to documents when he/she clearly has no idea what is being signed or why; signing the patient’s name for him/her. (After all, who’s going to know?) Although these actions might seem harmless and/or convenient, once discovered they could come back to haunt you in a very serious way, even negating any work done to protect assets from Medicaid. And, in many states, such action could even be considered "elder abuse."

13. BELIEVING YOU CAN GIVE AWAY $13,000 AND MEDICAID WON'T CARE:   Many people believe, or have been told, that they are allowed to give away up to $13,000 every year to each of their children and grandchildren, without Medicaid imposing any disqualification penalty. Wrong! This is a very common misconception. First of all, the $13,000 exemption you have heard about is an IRS rule, and has nothing whatsoever to do with Medicaid. Medicaid will impose a disqualification penalty for virtually any gifts, regardless of the amount.

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