Friday, November 1, 2013

Maintain a Paper Trail When Transferring a Parent's Assets!

Many people know that when an application is submitted for nursing home Medicaid coverage, the county Department of Social Services is required by law to scrutinize all financial transactions engaged in by the Medicaid applicant during the five year “look back” period prior to the date of the application. Asset transfers to family members during the "look back" period will receive particular scrutiny.  Unless it can be proven that the transfers were made (i) in exchange for goods or services provided, or (ii) for a purpose other than to qualify for Medicaid, then such transfers will result in the imposition of a Medicaid penalty period. With that unfortunate result, Medicaid coverage is delayed and the applicant’s family will be required to shoulder what could be tens or even hundreds of thousands of dollars in long-term care costs.

A recent New York appellate court case, Donvito v. Shah, provides a great example of this pitfall.  Between June 2007 and August 2008, Nicholas Donvito transferred funds totaling $54,162.05 to his son Mark and Mark’s family.  The final transfer of $6,500 was made one month after Mr. Donvito suffered a stroke, and just two months before Mr. Donvito entered a nursing home.  

When Mr. Donvito subsequently applied for Medicaid nursing home coverage, the Onondaga County Department of Social Services (“DSS”) imposed a seven-month penalty period, which was determined by dividing the total amount of the transfers made during the "look back period" by the Medicaid “Regional Rate” then in effect. The effect of the Medicaid “penalty” was that Nicholas Donvito was responsible to cover his nursing home costs during that seven-month period; since he had practically no assets at that time, the nursing home would have then looked to Mark to pay his father’s nursing home bill during the penalty period.  Mark, on his father’s behalf, appealed the DSS determination and filed for an administrative “Fair hearing.”

At the Fair Hearing, Mark raised a couple of issues.  First, he claimed that the final $6,500 transfer from his father was for reimbursement for expenses that Mark had incurred on his father’s behalf, and therefore was not a gift.  Second, while conceding that the approximately $48,000 in other transfers during the "look back" period were gifts, Mark claimed that those transfers were part of a pattern of gift-making by his father, and therefore were made by his father for a purpose other than to qualify for Medicaid, which is a statutory exception to the penalty rules.  The hearing officer disagreed, and after having their claim denied at the Fair Hearing, the Donvito’s sought judicial relief.

Unfortunately for the Donvito’s, they were unable to produce any receipts or other proof that the $6,500 transfer constituted reimbursement for expenses paid on Nicholas’s behalf, so the appellate court rejected that claim.  As to the other transfers that were conceded to be gifts, the court held that the family had failed to prove that such gifts were motivated for a purpose other than to qualify Mr. Donvito for Medicaid.  The court stated that, “[c]ontrary to petitioner’s contention, decedent did not have a consistent history of giving money to relatives; before the transfers in question, decedent’s most recent gift was seven years earlier.”  Accordingly, the court upheld the seven-month Medicaid penalty period imposed by the DSS. 

We regularly see families having moved funds from an ill parent to children, often for the legitimate purpose of reimbursing the family members for expenses they have covered for their parent. As in the Donvito’s situation, however, all too often the family fails to retain receipts or other evidence proving that the transfer of funds from the parent constituted legitimate reimbursement for the parent’s expenses.  As demonstrated by the Donvito case, such shoddy record-keeping may prove to be an expensive oversight if nursing home Medicaid coverage is subsequently sought within five years of any such transfers.