Asset transfers inevitably form a part of almost any asset protection plan where Medicaid eligibility is a primary objective. A brand new New York decision provides a cautionary tale that too much of a good thing may be a bad thing.
On June 9, 2011, the New York State Supreme Court, Appellate Division for the Third Judicial Department, rendered a decision in Matter of Steele. After Mrs. Steele entered a nursing home in July 1998, Mr. Steele filed a "spousal refusal" letter, which excluded Mr. Steele's income and assets from the determination of Mrs. Steele's Medicaid eligibility. Mrs. Steele received Medicaid coverage for approximately three years prior to her husband's death. After Mr. Steele died in November 2001, the Saratoga County Department of Social Services ("DSS") brought a recovery action against Mr. Steele's estate, seeking reimbursement towards Medicaid paid by the County for Mrs. Steele's care.
At the time of his death, Mr. Steele relatively few assets. Years before his death he had purchased an annuity (it is unclear if payments had terminated at the time of his death), and had transfered a summer camp to his children for no consideration, retaining a life estate in the deed of conveyance. Finally, just before his death, Mr. Steele transferred his car to his caregiver.
It was this final -- and seeminly innocuous -- transfer of the autmobile that ends up as the determining factor. Among it's many claims, the Saratoga County DSS contended that Mr. Steele's purchase of the annuity, transfer of the remainder interest in the summer camp, and gift of his car rendered him insolvent and thus constituted a "fraudulent conveyance" under New York's Debtor and Creditor Law. The court ruled that the purchase of the annuity was for consideration (which it was), and the conveyance of the real estate did not render Mr. Steele insolvent. The court ruled, however, that the gift of the car did render Mr. Steele insolvent, since upon transferring the vehicle his liability exceeded his resources by approximately $1,700, and thus did constitute a fraudulent conveyance. As a result, the court held that the Saratoga County DSS was entitled to recover Mr. Steele's "available resources" at the time of the original Medicaid filing in 1998, plus his "excess income" for the 39 month period between Mrs. Steele's entry into the nursing home and Mr. Steele's date of death.
The implication of this case is that had Mr. Steele retained the car -- and thus remained "solvent' at the time of his death -- DSS would not have prevailed on its fraudulent conveyance claim and would have been entitled to no recovery against his estate.
This moral of the story: engaging in a planned strategy of asset transfers has been, and likely will continue to be, a key to protecting assets when faced with long-term care cost; however, trying to save every penny will likely backfire under the theory, "pigs get fat, hogs get slaughtered!"