Bernie’s Blog

May 25, 2008 - Newsday

While my father was in a nursing home receiving Medicaid, his sister died and left him money in her will, and to his children if he died before she did. I am his only child. My lawyer prepared a renunciation and had my father sign it. The lawyer said this was to facilitate the transfer of funds to me without Medicaid claiming it. My father passed away in 2006. Medicaid states that renunciation is not allowed by Medicaid patients, and they are going to court to claim the funds that are still in my aunt’s estate. After paying the lawyer $3,000, do I have any recourse? I’m 71 and my annual income is about $30,000.

AL, North Massapequa

If you told the lawyer your goal was to protect this money from Medicaid, you should ask him to refund his fee. He knows tax law, but he didn’t check the Medicaid rules.

Your father was legally entitled to renounce all or part of his inheritance within nine months of his sister’s death. The amount he renounced automatically passed to the next heir named in her will - you.

Tax law says when you disclaim an inheritance, it’s as if you never had the money. Unfortunately, Medicaid law says your father’s inheritance was a resource available to pay for his care, says Bernard A. Krooks, a Manhattan elder law attorney. By renouncing it, he transferred his assets to you.

That transfer made him ineligible for Medicaid nursing home benefits during a penalty period that’s determined by dividing the amount he transferred by the average monthly cost of a nursing home. “Let’s say he renounced a $100,000 inheritance, for example. If the average monthly cost of a nursing home on Long Island is $10,000, then for 10 months, he’s ineligible for Medicaid,” Krooks says.

Medicaid is entitled by law to recover benefits paid during that penalty period from the inheritance your father renounced. It’s a waste of legal fees for you to contest the agency’s claim, Krooks says.

It would have been better to have had your father accept his inheritance, he said. He could then have given half of it to you without endangering his ability to pay for the nursing home. Here’s how:

Dad inherits $100,000. He gives $50,000 to his son. Assuming a $10,000 monthly nursing home cost, the gift makes him ineligible for Medicaid for five months. Dad lends the remaining $50,000 to his son in exchange for a promissory note. The loan is to be repaid in over five months in $10,000 installments. Dad uses those payments to pay for his nursing home care during the five-month penalty period.

The term of the loan cannot exceed Dad’s life expectancy, and it must carry a fair interest rate. When done correctly, says Krooks, the loan has no impact on Dad’s Medicaid eligibility.

My stepfather’s will stated that I would get his house, but his sister could live there until her death. I looked up the property records, and the house is in her name. Will my stepfather’s will take precedence? I really do not understand why he would have put the house in her name when he included it in his will.

The deed takes precedence over the will. If your stepfather transferred it to his sister during his lifetime, she gets the house.

But the deed may have been transferred by mistake after his death. “I’ve seen that happen,” says Eric Kramer, an estate lawyer at Farrell Fritz in Uniondale. Check the date on which the deed was transferred to the sister. If it’s after your stepfather’s death, you should speak to the attorney handling the estate and have it corrected.

By: Bernard A. Krooks, Certified Elder Law Attorney

Unfortunately, Medicare coverage of long-term care is extremely limited and subject to significant restrictions. Thus, if one of us or a loved one gets sick and requires long-term care we must either pay out-of-pocket or rely on Medicaid. One way to minimize the burden of paying out-of-pocket is to purchase long-term care insurance. This can help assist with the cost of care at home, in assisted living or in a nursing home. However, this type of insurance must be purchased in advance and many seniors do not qualify due to pre-existing conditions. Of course, those of us who are healthy enough and who can afford long-term care insurance should certainly consider this when doing our own estate planning.

Thus, seniors are often forced to rely on Medicaid to pay for long-term care. However, Medicaid has its own set of complicated rules and regulations which Congress recently tightened in the Deficit Reduction Act of 2005 (the “DRA”). To qualify, an applicant can have no more than $4,350 in non-exempt assets. As part of their Medicaid planning individuals sometimes transfer or gift assets to family members in order to reduce their assets to the Medicaid allowable amount. As a result of the gift, a period of ineligibility, commonly referred to as a “penalty period,” is imposed. Under the DRA, the penalty period now begins when an individual goes into a nursing home (if it is within 5 years of the transfer), applies for Medicaid benefits and has assets below allowable levels. The length of the penalty period is determined by dividing the amount gifted by the regional nursing home rate, i.e. the rate for the nursing home in the county in which the individual is institutionalized. The 2008 regional rates are as follows: Northern Metropolitan (including Westchester, Dutchess and Rockland) - $9,316; New York City - $9,636; and Long Island - $10,555. For example, if a Westchester nursing home Medicaid applicant gifts $93,160, he will be ineligible for Medicaid nursing home benefits for 10 months commencing when the applicant is in a nursing home, has non-exempt assets of no more than $4,350 and has applied for Medicaid nursing home benefits. If the individual gifts assets in March 2008, but doesn’t go into a nursing home and apply for Medicaid until February 2009, the period of ineligibility will run from March 2009 until January 2010.

When calculating a penalty period, the Medicaid agency must use the rates in effect for the year in which the individual applies for Medicaid. The regional rates change each year and are updated annually, effective January 1. As such, an increase in the regional nursing home rate creates a shorter penalty period. Thus, even if the gifts were made in 2007, the 2008 regional rates would be used if that is when the person applies for nursing home Medicaid. Gifts made prior to February 8, 2006, are not subject to the DRA rules and the penalty period starts in the month after the transfer. For example, if an individual gifted $93,160 in December 2005, he was ineligible for Medicaid for 10 months from January 2006 until November 2006.

The DRA also increased the “look-back” period, the period during which Medicaid looks back at one’s financial history, from 3 years to 5 years. Therefore, if an individual goes into a nursing home within 5 years of transferring assets, a penalty period will be imposed.

The Medicaid asset transfer rules are fraught with traps for the unwary. Be careful as you navigate these waters.