“Crisis” Medicaid planning typically involves the transfer of assets from the person seeking nursing home Medicaid coverage to one or more family members. While the transfer of assets to a spouse or disabled children constitutes “exempt” transfers that do not impact the donor’s Medicaid eligibility, transfers of assets to non-disabled children or other persons during the five-year “look back” period will result in a period of Medicaid ineligibility for those seeking nursing home Medicaid.
A recent New York court case, Aaron Manor Rehabilitation and Nursing Center, LLC v. Diogo, decided on February 14, 2014, highlights this dilemma. In that case, Grace Diogo was admitted in 2011 by her niece, Annette Louis, to the Aaron Manor nursing home. Ms. Louis, who Ms. Diogo had designated as power of attorney, signed the nursing home admission agreement on Ms. Diogo’s behalf. Under the terms of the admission agreement, Mr. Louis agreed to use Ms. Diogo’s assets to pay for Diogo’s cost of care, and to apply for Medicaid for Ms. Diogo.
In 2009 – two years before Ms. Louis signed the nursing home admission agreement for her aunt – Ms. Diogo gave Ms. Louis and her mother $24,000 apiece. Since those transfers constituted non-exempt transfers that were made during the 5-year look back period, they resulted in a Medicaid “penalty period” of approximately 5 months, during which time the nursing home was not paid by either Ms. Diogo (who by 2011 was essentially out of money), or Medicaid.
All of this could have been avoided had Ms. Diogo and Ms. Louis retained experienced legal counsel to design and implement an appropriate “crisis” Medicaid plan to preserve as much of Ms. Diogo’s assets as possible. An elder law attorney might have recommended a technique known as “reverse half-a-loaf,” under which a portion of the funds gifted in 2009 would have been returned to Ms. Diogo. The returned funds would then have been loaned to Ms. Louis and repaid under a Medicaid compliant promissory note. Such a strategy would have ensured that there were sufficient funds to cover a shortened Medicaid penalty period, while preserving at least a portion of the previously gifted assets. Under that strategy the nursing home would have been paid from the loaned funds during the Medicaid penalty period, with no gap in payment since Medicaid would have begun paying the nursing home immediately upon the conclusion of the penalty period.
While there is a cost to hiring an elder law attorney to design a crisis Medicaid plan, I can say with confidence that the cost pales in comparison to the cost of litigation, while producing superior results. As Ms. Diogo and her family discovered the hard way, it is rarely a good thing to see you name appear in a court caption!