“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.
Even in a
crisis planning situation, however, implementing a technique known as
“half-a-loaf” planning makes it possible to preserve
at least one-half
of a nursing home resident’s assets when seeking Medicaid coverage for the cost
of their care.
Unfortunately, too many
people do not seek qualified professional advice when applying for Medicaid for
a loved-one, and too often make assets transfers that result in significant
financial penalties for not only the person applying for Medicaid coverage, but
also for other family members to whom asset transfers were made.
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.
Evidently not pleased to be left
holding the bag, the nursing home sued Ms. Diogo and Ms. Louis for over
$62,000, asserting a number of contractual and tort claims including breach of
contract, unjust enrichment, and fraudulent conveyance. Central to the nursing
home’s position was the signed nursing home agreement that required Ms. Diogo
(and her agent, Ms. Louis), to use Ms. Diogo’s funds to cover the cost of care.
Among other claims, the nursing home asserted that the 2009 transfers
constituted a breach of that promise, since those transfers during the penalty
period left Ms. Diogo unable to cover the cost of her care during the resulting
Medicaid penalty period.
In its recent decision, the
Appellate Division for the Fourth Judicial Department denied the nursing home’s
motion for summary judgment, stating that Ms. Diogo and Ms. Louis had raised
genuine issues of fact as to whether the 2009 transfers actually constituted a
“fraudulent conveyance,” and whether Ms. Louis had in fact acted in compliance
with the nursing home agreement.
The matter
was returned to the trial court for further proceedings, which likely will
include a trial on the merits unless the parties are able to settle the case
before trial.
But even though Ms. Diogo and Ms.
Louis’ may have “won” the case at the appellate level, in a practical sense
they have already lost.
They (most likely,
Ms. Louis) have almost certainly spent many thousands of dollars on legal fees;
and, if they don’t settle the case anytime soon, many more thousands of dollars
in fees will be sure to follow, with no guarantee that they will prevail at
trial.
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!