Ten Myths of Care Assistance Planning

The following is a chapter from my book The Long Term Care Solution: The Truth Behind Today's Long Term Care Planning Explained in Plain English covering what I have seen as the top ten myths in Medicaid and other Care Assistance Planning Methods. If you want to learn more about how the main Medicaid rules work, check out the book available on Amazon here: https://www.amazon.com/dp/1935896164.  

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In 2015, a family came in to ask for help with getting their mother approved for Medicaid. I had actually spoken with the three kids and Mom in 2010 when Mom was only in the beginning stages of Dementia. At that time, they decided to handle things on their own. Since then, Mom had declined and had recently been in the memory care unit of a nursing home for the last 5 months at about $6,500 per month, and now that her assets were about to run out they wanted help with applying for Medicaid.

“We just need to make sure that we fill out the application correctly,” the oldest daughter said. “I know we’ve done everything right up until now, but I know how critical the application is.”

And so I started reading through the draft Medicaid application they had filled out, I got to the section on gifts, and I immediately knew there was a problem. Apparently, Mom had written checks for $14,000 to each child and grandchild for the past three years and $13,000 to each of them the year before. That’s three children, four grandchildren, and a total of $357,000 transferred in the last four years. On top of that, Mom had also transferred her house to the youngest daughter.

“Why did your Mom write all of these checks?” I asked.

“Well, because she could and she needed to spend down her assets,” the son said. “She gave each of us the maximum amount she could each year. That’s right, isn’t it?”

“Unfortunately, no,” I replied. “Those are amounts exempt from federal gift tax, not from the gifting penalties under the Medicaid program.”

“No, that can’t be right,” the oldest sister said, a look of panic starting to come over her. “Our neighbor works for an accountant and she told me that those gifts don’t count.”

“I’m sorry,” I said. “Again, it doesn’t count for gift TAX purposes, but it does count for Medicaid eligibility purposes. Let’s hold that for a minute. What about the house being transferred to you?”

The youngest daughter spoke up. “Well, that should be OK,” she said, trying to convince herself. “We were told that as a ‘caretaker child’ Mom could transfer the house to me. I helped her run errands, took her to doctor appointments, and even took out the trash because it was getting too difficult for her. That IS alright, isn’t it?”

“How long did you live in the house with your mother?” I asked.

“Oh, I don’t live there,” she said. “I was there at least two or three days a week, and then just about every day for a few hours when things started to get worse. That is OK, isn’t it?”

I leaned back into my chair a little, bracing myself for the bad news I had to give. I started tapping in numbers into the calculator, figuring if I had to give bad news it should at least be accurate bad news. “Actually, the transfer of the house doesn’t come under the caretaker child exception because you didn’t actually live with your mother,” I said. “But having the house won’t disqualify your mother from getting Medicaid since it is worth only $200,000. We just have to transfer the house back to her. It does mean that Medicaid can put a lien on the house, but that is better than not getting Medicaid at all.”

They looked a bit shocked, and I decided to just rip the bandage off. “If you don’t, then she won’t be eligible for Medicaid for 89 months, meaning 7 years and 5 months. If you do, then it is only 56 months or 4 years and 8 months. Is there any possibility all of the money she gifted to the family can be paid back.”

“What are you talking about!” the son shouted. “We don’t have that money anymore!”

“Hold on,” the oldest sister said, quieting her brother. “Are you telling us that Mom won’t be able to get Medicaid because of these gifts and moving the house to my sister?”

“Not for 89 months,” I said. “Unfortunately, unless they are undone and the refunded money is spent down correctly, the effect of these transfers means you would be better off paying for your mother’s care out of pocket for about the next four and a half years and then applying.”

The youngest daughter then asked the million dollar question. (Well, not the million dollar question, but close enough). “So what would’ve happened if you had helped us plan for this when we came to you five years ago?” she asked.

“We probably could have saved more than $300,000 and protect the house from a Medicaid lien,” I said.

They sat in silence.

There are a lot of myths surrounding the Care Assistance process, particularly when it comes to Medicaid since the program is the most complicated and skilled care is the most costly. And, unfortunately, the consequences of incorrect information are often irreversible and very, very expensive. That is why I have compiled the Top Ten Myths of Care Assistance Planning for you. If you believe even one of these is true, failing to get the right information and help can be catastrophic.

10 Myths That Can Put Your Home and Savings at Risk

Myth 10. Medicare pays for all medical conditions, even ones lasting longer than 90 days. The fact is that Medicare is a type of primary health insurance for seniors that takes care of a limited amount of services for a limited period of time. It does not pay for all long term care needs.

Myth 9. Medicare Supplements pays for long term care. While the various Medicare supplements pay for things that regular Medicare doesn’t and can help defer out-of-pocket costs, it does not pay for long term care, which can be the most expensive cost to you and your family.

Myth 8. Primary Health Insurance pays for long term care. Just as Medicare will not pay for long term care, even with Medicare supplements, neither does privately paid health insurance handle long term care.

Myth 7. If you need long term care, you can just buy Long Term Care Insurance at that point. This is like saying you can always buy life insurance at a young age if you develop cancer. While it may actually be possible to find an insurance company to insure you, you better believe it will be astronomically expensive and you are better off getting it when you are healthy.

Myth 6. You can qualify for Care Assistance by giving your assets away just before you go into a nursing home. While there are certain Care Assistance benefits available to Veterans, their spouses, and widows/widowers, this is often for “non-skilled care” assisted living help. Simply giving all of your assets away can work if done more than five years before applying for Medicaid, but any sooner than that and you need a comprehensive Care Assistance Game Plan in place. And, no, there is no $15,000 a year per gifting exemption; that only relates to federal gift taxes and there is no similar exception for Medicaid.

Myth 5. A revocable living trust protects assets from a Medicaid Spend Down. While revocable living trusts are excellent estate planning tools and, in certain circumstances, can assist with a spend down for married couples, it does not simply exempt assets from a Medicaid spend down. In fact, it can even make otherwise exempt assets countable for Care Assistance purposes!

Myth 4. You can help qualify for Care Assistance by signing over your house to your kids. While there are many strategies that may include gifting assets, and even the house, to children, it is often the biggest and most financially crippling move you can make. Unfortunately, it is also one of the most frequent moves made by a family gripped by “nursing home panic” because they feel the need to do something, and there is no shortage of real estate attorneys who can draft a deed very inexpensively. And the good real estate attorneys (rightly) have waivers in their engagement letters absolving them from any liability.

Myth 3. There’s no need for a health care power of attorney or living will because the family knows what you want. While this is also universally a good idea for estate and health planning purposes, it becomes all the more critical when long term care is involved. Having the right people in place at the right time to make health care decisions when you can’t makes all the difference in the world. And having your end of life decisions regarding life support, artificial nutrition and hydration in a legally binding document means that your family doesn’t have to guess or have the burden of such a monumental decision.

Myth 2. Having a fill-in financial power of attorney from the office supply store or from a website is good enough. It isn’t. There are very specific gifting provisions, particular financial powers, and Care Assistance language that should be incorporated into financial power of attorney documents that relate to Care Assistance Planning. In fact, most estate planning attorneys do not have these provisions in their standard documents which may otherwise be very comprehensive.

Myth 1. There’s no need for a comprehensive Care Assistance Game Plan… my friend/neighbor/barista just did “X” and everything turned out OK. There are more than 200,000 regulations surrounding the Medicaid portion of Care Assistance Planning (let alone other Care Assistance programs) and there are just as many combinations of strategies and techniques that can be used depending on you and your family’s unique situation. It is a huge mistake to think that everything will be clear because you think you understand 3 pieces of a 200,000 piece puzzle. It’s always best to have a comprehensive Care Assistance Game Plan in place before taking any actions.

With any luck, you have recognized some of these items as myths to begin with, but don’t feel bad if you didn’t. Care Assistance Planning is an extremely complicated area with an astounding number of traps and loopholes, and unless you make a career out of it you are not likely to know these myths from general reading and information from non-professionals. The main point I want to leave you with in this section is that Care Assistance Planning is far from simple. But, like the family in the beginning of the book, there can be a lot of savings for the family if planning is done correctly and a huge financial loss if done incorrectly.

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For more information, check out the course at http://www.FreeMedicaidCourse.com