In a recent Medicaid case in the State of Ohio, a county caseworker took the position that a partial cure of a gift would over resource the Medicaid applicant. Is this a new position? No! At Krause Financial Services, it has always been our opinion that if an individual gives away assets, thus creating a divestment penalty period, the return of those assets, either directly or indirectly, will cause a countable resource problem.
To illustrate the problem, I have provided the following example:
Mrs. Smith, an 80 year old widow, has $100,000.00 in a savings account. Having just entered the nursing home for long-term custodial care, Mrs. Smith realizes that with her monthly nursing home bill expected to average $6,000.00, and only having $1,000.00 of monthly income from social security and pension, her life savings will last only 20 months.
With advice from an elder law attorney, instead of spending down her assets on the nursing home, Mrs. Smith elects to retain $1,000.00 in her savings account, gift away $99,000.00, and immediately apply for Ohio Medicaid benefits. As a result of the gift, Mrs. Smith is assessed a 18.87 month divestment penalty period.
During the divestment penalty period, Mrs. Smith's children - the giftees, return $4,900.00 per month directly to Mrs. Smith. Mrs. Smith then utilized the returned funds to privately pay her nursing home bill. At the end of 10 months, with Mrs. Smith having received back $49,000.00 from the original gift, she requested her caseworker to re-adjust the original divestment penalty period in order to grant her immediate Medicaid eligibility. ($99,000.00 - $49,000.00 = $50,000.00) ($50,000.00/$5,247.00 = 9.52 months)
In light of the aforementioned example, would the case have had a different result if the returned gift had been made indirectly? In other words, instead of Mrs. Smith's children paying her $4,900.00 per month, the children would have paid the funds directly to the nursing home. No! In both cases, the caseworker would have alleged that when the $4,900.00 gift amount was returned, it was a countable resource in the month returned. Additionally, with the Ohio Medicaid Program having a $1,500.00 countable resource limit for individuals, Mrs. Smith will not be eligible for Medicaid benefits.
How does one avoid the aforementioned result? The only way to avoid the aforementioned result is to develop a Medicaid Plan which does not involve a partial cure. Instead, the Medicaid Plan should include a gift, and a Short-Term Medicaid Compliant Annuity.
