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How To Pay An Adult Child Without Jeopardizing Medicaid Paying For Care Costs – Five Examples Of What Is Acceptable Or Not For Granny Smith And Others

Most Americans do not have adequate long-term care insurance for care at home or in a nursing home. Furthermore, most Americans would like to stay at home as long as possible before nursing home care is required. If one has inadequate income or resources or insurance to pay for care, then Medicaid is often sought since it helps pay for care at home or in a nursing home.

However, long-term care Medicaid is “means-tested” (the government looks at your countable resources such as checking accounts, savings accounts, investment accounts, etc.). Presently, a Medicaid applicant who is single must have less than $2,000 of countable resources (certain resources such as a homestead, one car, pre-need funeral, personal property items, and some IRAs, etc. do not count). There is also a five-year “look-back” period to determine if there are any uncompensated transfers which would result in a penalty (or ineligibility if applying for the Star+ Medicaid program for care at home) as the government assumes that an applicant may have tried to reduce his or her countable resources on purpose so that the government would substantially help pay for the applicant’s care at home or in a nursing home.

As a result, many may ask “How can I pay my child (to reduce countable resources) without jeopardizing Medicaid eligibility for care at home or in a nursing home?” Under Texas long-term care Medicaid rules, the following explains some scenarios of what is acceptable or when payment could result in a penalty.

  1. Must have an agreement. Before any transfers within the five (5) year look-back, there must be an agreement that sets forth the terms of the services to be provided for payment of compensation. Even if a child is not a caregiver, written statements from the individual paid for the services would be needed to validate the receipt of services. This is often a problem when a caregiver is paid in cash and doesn’t want to report the payments to the IRS since it would be taxable income. It is also a problem if the one who made the payments is not wanting to disclose the potential employer-employee relationship whereby there should be withholding (for unemployment, FICA, etc.).
  2. No compensation for services normally provided by a family member. House painting or repairs, mowing lawns, grocery shopping, cleaning, laundry, preparing meals, and transportation for medical care are examples of services that a family should provide without being entitled to compensation.

5 EXAMPLES OF COMPENSATION UNDER LONG-TERM CARE MEDICAID

  1. Quit job to take care of patient.
    Facts: Ms. Spike Lee, a nursing home Medicaid applicant, transferred a $30,000 money market account to her daughter, Sara Lee, the same day the applicant was admitted to a nursing home for her care for the six months prior to institutionalization. Ms. Lee authorized the transfer because Sara had quit her job to take care of her mother. Sara was earning $3,000 a month when she quit her job.
    State Ruling: Since Sara quit her job for care of her mother (proof would be needed about the agreement, her earnings, and that she quit), this would be acceptable as compensation for services rendered (to the extent services were rendered). Proof of Sara’s last wages payment would be acceptable to show proof of earnings. Since Sara earned $3,000 a month and she took care of mom for six months, $18,000 would not be considered a transfer penalty for long-term Medicaid eligibility (although there would be ineligibility for the Star+ Medicaid program for substantial care at home since under that program any uncompensated transfer would result in ineligibility), and the remaining $12,000 would be subject to a transfer penalty.
  2. Reimbursement for services paid by child pursuant to agreement.
    Facts:
    Mr. Jerry Jones, a nursing home applicant, transferred a $10,000 CD to his son, John Paul Jones, within 60 months (the look-back period) of the Medicaid application for his son’s payment of his care costs. Mr. Jones provided a written statement specifying the terms of the agreement because John Paul had paid the caregiver, Betsy Ross, $500 each week for four months to provide in-home care for his father due to Mr. Jones’ medical condition and his inability to pay Betsy and his other living expenses. In addition, John Paul furnished receipts (besides the receipts from Betsy Ross) showing he had paid I.M. Carpenter for home improvements to Mr. Jones’ home. The receipt for the materials and I.M. Carpenter’s services totaled $3,000.
    State Ruling: The payments to Betsy Ross and I.M. Carpenter are acceptable compensation and since the amount John Paul received ($10,000) was less than what he paid for services on behalf of his father pursuant to their agreement ($500 x 4.33 = $2,165 x 4 = $8,660 to Betsy plus $3,000 to Carpenter $8,660 + $3,000 = $11,660), there was no transfer penalty as written statements to the terms of the agreement were provided.
  3. Reimbursement without agreement not acceptable.
    Facts: In November, Andy Williams’ son, Robin, gave him $5,000 to help pay his mortgage and taxes. There was no agreement that his son would be repaid. The following January, Mr. Williams entered into a nursing home and applied for Medicaid. That same month, Mr. Williams’ home was sold and he gave his son $5,000 of the proceeds.
    State Ruling: Since there was no agreement that his son would be repaid when the home was sold, Mr. Williams transferred $5,000 without compensation resulting in a transfer penalty.
  4. Transfer of home for painting and yard work unacceptable.
    Facts: Granny Smith, a nursing home applicant, transferred her homestead to her grandson, Emmitt, within 60 months of application since he painted her home last year and did lawn work weekly for the last two years.
    State Ruling: Since a family member is expected to paint the home and take care of the lawn, there would be a transfer penalty determined by dividing the fair market value of the home by the average daily cost of care from the month Granny Smith applied and was otherwise eligible for long-term care (nursing home) Medicaid.
  5. Transfer of home to a child who prevented institutionalized care for two years is permitted.
    Facts: Granny Smith transferred her home to her daughter, Anna Nicole (who is not disabled or a minor) who lived in her mother’s home for at least two years before her mother’s institutionalization and provided care that prevented institutionalization.
    State Ruling: Since Anna Nicole was able to get a written statement from Granny Smith’s attending doctor that Anna Nicole’s care resulting in Granny Smith’s being able to remain at her home, this is an exception to the transfer penalty rules. Caveat: property tax, capital gains tax and gift tax issues should be considered.

The presumption is that an uncompensated transfer within the five year look-back period was purposefully done to reduce countable resources so that the government would assist in paying for care. Knowledge of the rules is paramount prior to applying for Medicaid benefits.

If interested in learning more about this article or other estate planning, Medicaid and public benefits planning, probate, etc., attend one of our free upcoming virtual Estate Planning Essentials workshops by clicking here or calling 214-720-0102. We make it simple to attend and it is without obligation.

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