"The Baker's Dirty Dozen"
Learn How to Avoid the 13
Most Costly Medicaid Mistakes
Single Patients Qualify for Medicaid
While Protecting Assets
First, the good news! Americans are living longer. Now, the bad news. Americans are living longer. The problem is the longer you live, the more likely you will end up in a nursing home or some other form of long-term care. Every day in this country, thousands of people, mostly elderly, enter nursing homes. Some people will spend a few days, weeks or months in a nursing home in order to recover from an acute health situation before going home. There are many others, however, who never leave. They spend the rest of their lives, sometimes years, in the nursing home, or some other type of long-term care facility. And the cost for such care can be staggering. Even though the cost will vary widely from one geographic area to another, it will be in the thousands per month. The only question is: How many thousands?THE DIRTY DOZEN FOR SINGLE PATIENTS
Various studies have shown that most unmarried patients going into a nursing home, will, on average, exhaust their life's savings in less than one year. Imagine! You spend half a century or more working, scrimping and saving so you can have something left in your old age, something you can pass on as a legacy to your children or grandchildren. And then, in a matter of months it is gone. And, for those who run out of money, virtually all will end up on Medicaid. So, for those who live long enough in care, it is not a question of WILL they end up on Medicaid, but only a question of WHEN?
It’s not that families don’t try to do something to protect assets from Medicaid. So often, though, they do exactly the wrong things. Frequently, families will quickly transfer all the assets out of the patient’s name and then go to Medicaid. They soon learn, of course, that Medicaid has that one figured out and the patient is quickly disqualified from Medicaid benefits.
There are other families who try to be more proactive and plan and/or take actions long before the patient ends up in expensive care. But so often, they too end up stumbling around in the dark, doing the wrong things, taking the wrong advice (even from attorneys or other professionals). And even the Medicaid worker can't give you such advice.
So, whether you plan, or whether you just react, what are the most common mistakes made by a single long-term care patient – mistakes that can cost tens or even hundreds of thousands of dollars? Following are the 13 most common (and costly) mistakes families make – the "baker’s dirty dozen" of Medicaid asset protection planning:
1. 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 a crucial 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.
2. ASSUMING THE ANNUITY YOU BOUGHT YEARS AGO WILL PROTECT ASSETS FROM MEDICAID: Over the past few years, many folks have purchased annuities based on the assurances from the agent that the product would "protect" their assets from Medicaid, should the annuitant ever need to go into a nursing home or other long-term care. 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 in 2006, essentially all of the annuities that might have provided some protection from Medicaid in the past are no longer effective when it comes to a single patient. There are currently a handfull of annuities in existence (referred to as DRA Medicaid-compliant) that, in combination with a well-planned gifting program, help to provide an unmarried patient with protection from Medicaid.
3. 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.
4. 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 erroneously assumed that once the patient is in the nursing home, nothing can be done. In almost all cases, though, some portion (the amount depends on the circumstances) of the patient’s estate could have been saved for his/her family, but it would have required taking effective action before the money was gone. So often families 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.
5. 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 a legitimate Medicaid specialist. 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 specialists are few and far between. Fortunately, effective Medicaid asset protection and planning is not that difficult or complicated, once you know what you’re doing.
6. 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 until it is gone, and then we will put the patient on Medicaid," 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.
7. 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 are therefore, in most cases, still considered as countable resources (for Medicaid qualification) and required to be spent down or eliminated in some other form before Medicaid will provide benefits. In addition, when trying to protect assets from Medicaid, there are certain conditions under which a Living Trust could cause the patient to lose up to 65 percent more of his/her assets than would have been necessary had there been no Living Trust in the first place.
8. 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. This is not a slam against attorneys, but they, like doctors and many other types of professionals, tend to specialize. There are probably not ten lawyers in a hundred who really understand Medicaid to any degree, and no more than two out of that hundred who could really be called Medicaid experts. 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.
9. 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.
10. RETAINING A LIFE ESTATE: A Life Estate is a deeded right that a person may choose to retain when a home is sold or transferred. A Life Estate includes the right of that individual to reside in that home for life, even though that individual technically no longer owns the property. It has been a longstanding practice of many attorneys to recommend a Life Estate in situations where their client wished to transfer ownership of a home to the children or other parties. After all, it was important to ensure that the individual always had a place to live. The problem that has developed over the last few years is that many states (and the number is growing constantly) are now using the Life Estate as a "wedge" to go after, at the time of death, homes previously owned by Medicaid patients. At the death of the patient, many states are now making claim (for recovery of Medicaid benefits) against the calculated value of the Life Estate, even though that Life Estate ceased to exist when the patient died.
11. 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.
12. 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 loved one qualified for Medicaid. Only later, after the patient has 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.
13. 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."
There you have it, the Dirty Dozen. Certainly, there are other mistakes that families make when trying to protect a single patient’s assets from Medicaid, but these 13 seem to consistently rise to the top. What’s so frustrating, when dealing with this issue, is that all it takes to avoid every single one of them is a little education, and the right answers. And that’s exactly what the MEDICAID ASSET PROTECTION PLAN (MAPP) provides. It addresses every single one of these questions, and much more. MAPP was designed specifically to empower individual families to take action to protect the assets of an unmarried long-term care patient from Medicaid. Click Here to learn how to protect assets from Medicaid while avoiding the Dirty Dozen.