Many years ago, I handled a small real estate matter for my cousin Harold who was a Holocaust survivor. When we finished, he asked me for a bill. I was very fond of him and told him there was no charge. We went back and forth a few times, until he said: “Michael. Friends is friends. Family is family. But business is business. You’ll give me a bill.
When I started handling Medicaid applications, I learned they subscribe to the same theory, although for a different reason. Most people know about the Medicaid 5-year lookback period. What is still a mystery is the audit that takes place to see whether the applicant qualifies for benefits. This includes an examination of all checking and savings accounts, brokerage accounts, life insurance policies, annuities, 401(k) and IRA accounts on which the applicant’s name appears, individually or together with someone else, and regardless of whether the account is still open or closed. It also includes all real estate transactions (purchases and sales) in the last 5 years.
The instruction letter from Medicaid directs the applicant to furnish a very long list of items (birth certificate, marriage certificate, spouse’s death certificate, social security card, to name just a few. It also directs production of every check for more than $500.00. And they reserve the right to demand production of invoices to back up each check. If you can’t provide the documentation, they consider the transfer a gift, and you run the risk of a Medicaid penalty. For every $10,000 that is not documented, the penalty is ineligibility for Medicaid benefits for 1.37 months. This can add up significantly.
Here are some problems we encountered in a recent application. I have changed some of the facts in order to keep focused. Mom is in her late 80's. When her husband died, she was in good health and lived alone in her house on modest Social Security benefits. She didn’t have a checking account because she was afraid of banks. Writing checks was too complicated for her. Her Social Security check was direct-deposited into her savings account, where she also kept her modest savings. She had only a few bills to pay: gas and electric, telephone, real estate taxes and water. When she needed to pay a bill, she made a withdrawal and paid cash. After paying the bills, she destroyed them.
She did not have enough money for repairs and extraordinary items. Her daughter and son-in-law willingly helped her out whenever necessary. Over the course of time, they advanced more than $14,000 for her. Then, without warning, she became ill. Not wanting to enter a nursing home, she took out a reverse mortgage. This gave her enough money to pay the cost of rehabilitation in a nursing home that was not covered by insurance and to pay a caretaker. She also made some repairs to make her house more comfortable. And she repaid her daughter and son-in-law the $14,000 they had lent her. They had kept copies of every check going back almost 25 years, so they knew what they had advanced. There was enough money to keep her in the house for a while, but eventually her health worsened and she went into a nursing home permanently. The house was turned over to the reverse mortgage company. When the proceeds from the reverse mortgage ran out, Mom made an application for Medicaid benefits.
The Medicaid caseworker reviewed the documents submitted and advised us that we had to submit explanations for about 30 transactions, all of them over $1,000.00, as well as for the $14,000 that Mom had reimbursed. The daughter and son-in law struggled with a number items because they were cash withdrawals made by Mom before they took over her finances. Mom was not able to explain the transactions because of her incapacity. We eventually were able to show, by obtaining a printout from the tax collector, that withdrawals made during a two-year period in February, May, August and November corresponded to the dates of payment of real estate. However, some of the withdrawals were for more than the amount of the taxes. We are trying to convince the caseworker that the surplus was for pocket money until the next tax payment/withdrawal.
Some of the checks were to reimburse the daughter for appliances. Even though there was a receipt, it was not good enough because the bill was made out to the son-in-law at his address. Fortunately, big box stores keep all transactions on record electronically, and we were able to retrieve the entire bill, including instructions showing that delivery was made to Mom’s house. Checks made out to the son-in-law to reimburse him for paying cash to a handyman for repairs were initially rejected because it was not on a formal billhead with the name and contact information of the contractor, even though there was a detailed, signed receipt. We were lucky that the son-in-law had the handyman’s cell phone number, and he willingly gave us a duplicate receipt on his billhead. Unfortunately, the reimbursement check was for more than the payment and was used for other workers who could no longer be located. The clients will likely be out of luck for the balance, which will be deemed to be a gift and not permitted.
In addition, there were some withdrawals that simple did not ring a bell enough to give a satisfactory explanation or to try to obtain confirmation that the money was used for Mom. And there was one purchase for a hot tub that Mom wanted to give as a thank you to her children. Even though Mom used the hot tub 3-4 times a week, the expenditure is likely to be disallowed.
The big disappointment is the $14,000 reimbursement. The caseworker indicated her intention to disallow the payment because there was no written document by which Mom agreed to repay money advanced to her, but she agreed to make an exception for money advanced during the 5-year lookback period.
The lesson to be learned is what my cousin Harold taught me. Friends are friends, family is family, but business is business. When you are dealing with super- senior citizens and you think that a Medicaid application may be in the future (and even if you are not sure), put agreements in writing. It may be family to you, but to Medicaid, it’s business. Keep records. Keep receipts. Make notes. Be careful about making gifts. THINK AHEAD. PLAN AHEAD. GET PROPER ADVICE!
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