YOUNGER LAW NEWS: HOW INADVERTENT MISTAKES CAN UPSET MEDICAID PLANNING
Most people now know that Medicaid rules, although restrictive, allow some flexibility that enables people to make asset transfers without penalties. Taking advantage of the rules requires not only careful planning but also careful follow through. A recent actual case is a good example of how many things can go wrong. The facts have been modified slightly for purposes of consistency.
Bill and Peggy had both been widowed when they married each other. Bill had two adult children with whom he was not especially close. Peggy had one adult child, Tom. As they grew older, they executed new wills. The plan was to split their assets down the middle because they were both in failing health, Bill worse than Peggy. Bill wanted to leave his small estate to Tom with whom he was very close. We separated their bank accounts and transferred the house to them as tenants in common - - so that each of them owned half of the house and could transfer it as they wished.
Earlier this year, the house was sold. Both Bill’s and Peggy’s health had declined considerably. Bill had entered a nursing home before the closing. Peggy went to live with Tom and his wife. It was clear that both of them would run out of money soon and would have to apply for Medicaid. Bill’s daughter, who lived far from Tom’s house, asked that her father be placed close to her so that she could look after him. (She knew she was not mentioned in his will) The HUD (closing) statement showed Bill and Peggy each received half of the net proceeds. Two equal checks were written by the buyers’ settlement agent, one to Bill and one to Peggy.
In all of the confusion after the closing, Tom, who was acting for his mother and step-father as agent under a power of attorney, deposited Peggy’s check correctly in the account owned by her and Tom. He deposited Bill’s check into the joint account between Bill and Tom.
As part of the planning process, Bill changed the beneficiary on two life insurance policies from Peggy to Tom. Had he not done so, the proceeds would go to her upon bill’s death and be a resource she would have to spend down before becoming eligible for Medicaid.
Tom believed everything had been done as well as could be expected. He was soon to be in for a surprise.
Two weeks after signing the change of beneficiary form, Bill died. By that time, Peggy was in a nursing home, too, short on funds and nearly eligible for Medicaid benefits. Tom expected to collect the life insurance and the money remaining in Bill’s bank account. Unfortunately, Tom had forgotten that, after he opened the joint account with Bill, the bank officer suggested Peggy’s name be added to the account “because she is his wife.” Believing the bank officer must know what she was talking about, Tom allowed Peggy’s name to be added to the account without consulting counsel. As a result, the account was now owned by Bill, Peggy and Tom (the “Triple Joint Account”). In addition, Tom had engaged a company (“MPC”) to handle the Medicaid applications for both his mother and his stepfather. MPC does not use an attorney to prepare or present Medicaid applications. Tom engaged them because the nursing home recommended them and said they would do a good job. [Make sure to read the article in this month’s Elder Law News entitled “Beware of Non-Lawyers Offering Medicaid Planning Advice.”]
In a conversation with Bill’s attorney regarding the administration of Bill’s estate, Tom realized the consequences of having deposited Bill’s check in the Triple Joint Account. MPC had told him all of the money in the Triple Joint Account had to be spent down to $2000 before Peggy would be Medicaid eligible. Tom accepted that at face value. Bill’s attorney advised him, however, that the inadvertently deposit check should be removed from the account because it did not belong to Peggy - - and there was a paper trail to prove it. It gets worse. A payment became due for Peggy’s care. The MPC caseworker told tom the money in the Triple Joint Account should be used for Peggy’s care, so he paid a full month’s fees to the nursing home. We know that some companies like MPC perform free or reduced-rate services for the nursing homes that recommend them. Such companies have clear conflicts of interest and are being investigated for practicing law without a license. We do not know what relationship MPC has with the nursing home, but we do know there was an apparent conflict of interest that likely led to giving bad advice.
Fortunately, Tom was able to transfer the remaining balance from the Triple Joint Account to Bill’s estate account. And he has received the proceeds from one life insurance policy and is waiting for the proceeds from the other. He still has to make a demand that the nursing home return the money incorrectly paid to it. There is another way for the nursing home to recoup that money, but it is beyond the scope of this article.
The moral of the story is that, when you are doing Medicaid planning, whether it is setting up an asset protection plan or implementing it, you should consult with experienced counsel.