Beware of “Forgotten Assets” When Applying for Medicaid. And Beware of Bankers Trying to be Helpful.

We received two similar questions this week and will address them both.

Q1. My aunt opened a savings account at her local bank for her son (my cousin) in the late 1980’s when my cousin was in college. When she opened the account for him, the bank representative, trying to be helpful, suggested that the account be opened in both her name and her son’s name so that she could access the account for him while he was away for college. My aunt forgot all about this account because in her mind it belongs to her son. Her son also considered the account to be his because that’s what his mom intended, and he used the account over the years, never caring or even paying attention to the fact that his mother’s name was still on the account. Recently, my aunt suffered a serious stroke resulting in her needing to enter a nursing home, and my cousin, acting as his mom’s agent under her Power of Attorney, did the right thing by hiring a Certified Elder Law Attorney to do Medicaid planning and protect as much of his mother’s assets as possible in connection with getting her on Medicaid. Of course, the elder law attorney required my cousin to provide a complete list of all of his mother’s assets, which he did. Unfortunately, he didn’t even think about telling the elder law attorney about this joint account from his college days, because he knew it to be his account and didn’t even think about the fact that it still had his mother’s name on it. This led to a huge problem — after the elder law attorney worked his magic of using multiple Medicaid asset protection strategies to protect a large percentage of my aunt’s assets and apply for Medicaid, they got denied for Medicaid because the state Medicaid office, in its standard search of assets, found this joint account, which had enough money in it to make my aunt ineligible for Medicaid because Medicaid counted all of it as belonging to her. My cousin now feels terrible that he didn’t think of reporting this joint bank account to the elder law attorney; he is beside himself with regret for not remembering that his mother’s name was still on his account, and he is kicking himself for the fact that his failure to report this has now resulted in his mother being denied for crucial Medicaid benefits. Is this a common occurrence? Is there anything that can be done to avoid this type of thing?

Q2. My father purchased Gerber whole life insurance policies for me and my brother shortly after each of us was born, knowing this could be a great financial benefit for us to have way down the road for our retirement, since these policies build up cash value that we can borrow from later in life. Recently, our father, who has had a degenerative neurological condition for years, wound up in a nursing home. My brother and I met with an experienced elder law attorney and decided to hire him to protect as much of our father’s assets as possible in connection with getting Medicaid to pay for most of his nursing home care, so that he would not have to go broke in order to get Medicaid. My brother and I both have Power of Attorney for my father, and we worked together to get the elder care attorney a list of our father’s assets. Neither one of us thought to include these Gerber life insurance policies, as we both thought of these as “our” policies. After the attorney implemented all the asset protection strategies and applied for Medicaid, the Medicaid state agency found these life insurance policies and counted their cash value as belonging to our father since he was the owner of these policies, and this caused our father to be denied Medicaid. We both feel terrible for not realizing that these policies were owned by our father and that the entire cash value would be attributed to him. Is this common, and what can be done to prevent this type of thing?

A. Long-term care Medicaid as effectively a government sponsored long-term care insurance program that is jointly funded through your federal and state tax dollars and administered by each state. States set eligibility levels based on an applicant’s income and assets, but mostly assets, as the income requirement is simply that the applicant’s income be lower than the cost of care. As a Medicaid asset protection attorney, we help our clients qualify for Medicaid long-term care coverage, an extremely complex process.

Medicaid offers support to many seniors who need long-term care. So long as an individual meets all of the eligibility criteria, they can access Medicaid’s long-term care benefits and receive the long-term care they need without having to bankrupt their family.

There are many eligibility requirements for getting long-term care Medicaid in Virginia, Maryland, or DC, but today’s questions focus on countable assets (also known as resources), which is what we will focus on today. When it comes to resources, each state has its own resource threshold, called the individual resource allowance, to be eligible for Medicaid.

  • Virginia Medicaid Individual Resource Allowance: $2,000
  • Maryland Medicaid Individual Resource Allowance: $2,500
  • DC Medicaid Individual Resource Allowance: $4,000

Every Medicaid applicant must have resources (countable assets) under this threshold to be eligible for Medicaid. One penny of resources in excess of this threshold completely destroys Medicaid eligibility. The old idiom that “close only counts in horseshoes and hand grenades” is very true when it comes to Medicaid eligibility.

Unfortunately for the people that asked the two questions above, the general rule is that every asset that is convertible to cash and is owned by the applicant (or the applicant’s spouse if the applicant is married) is countable. This includes the entire amount in a joint bank account and the cash surrender value of all life insurance policies owned by the applicant.

How Does Medicaid Find Your Accounts?

First of all, when you apply for Medicaid, you are required to report all of your resources. Failure to do so may constitute healthcare fraud, which can land you in federal prison for up to 10 years and subject you to a federal fine of up to $250,000. State have their own healthcare fraud statutes as well. Despite the statutes, there are people who apply for Medicaid on their own, without the help of an experienced elder law attorney, who commit Medicaid fraud. Because of this fraud, in 2008 the federal government began requiring that all states implement “Asset Verification Systems (AVS programs) — electronic systems that automatically collect records from financial institutions when you apply for Medicaid initially, and every year thereafter when you are required to re-apply for Medicaid. The statute requires states to contract with public or private entities in order to implement their programs. Medicaid therefore has easy access to electronically verify all of your assets, whether or not you report them period. these AVS systems are used routinely to check account balances, unreported assets, joint assets, and to check for accounts that were closed during the 5-year look-back period prior to applying for Medicaid. This is done to ensure no assets were unreported and that no assets were gifted or sold for less than fair market value during the 5-year look-back period.

How Do Life Insurance Policies Affect Medicaid Eligibility?

Whether a life insurance policy will disqualify you from Medicaid depends on the type of life insurance, who owns the policy, and whether the life insurance policy has cash surrender value. It does not matter who the beneficiary of the policy is; it does not matter whose life is insured. If the Medicaid applicant is the owner of the policy, that means the medicate applicant can withdraw all the cash value of the policy, which is why the entire cash value of the policy is a countable asset to the Medicaid applicant.

Most employer-based life insurance policies (and many privately obtained life insurance policies) are “term life” insurance policies, which do not count towards Medicaid’s asset limit, as term life insurance has no cash value. But most other types of life insurance, including universal life insurance and whole life insurance, have cash value which often grows accumulates over time. This cash value counts as an asset count towards Medicaid’s resource limit and can easily put someone over the resource limit if not taken into account or not reported. There is a minor exception for life insurance policies that are purchased and then irrevocably assigned to pay funeral expenses.

What Can You do to Prevent Accidental Failure to Report Accounts and Other Assets?

The easiest way to prevent accidental failure to report resources is to make sure that you keep accurate records of all of your resources, including insurance policies that you own and all accounts that you have closed. This of course also includes records of assets that you jointly with another person. If you are the joint owner with another person on a bank account, Medicaid will generally automatically presume that the entire balance of the account belongs to you. To overcome this presumption, you will need to prove that none of your assets ever went into that account. To learn more about financial documents to keep in case you ever need to file for Medicaid, please click here.

Is Medicaid Eligibility Redetermined Each Year?

Once determined eligible for Medicaid, annual redeterminations are done to ensure a Medicaid recipient still meets the financial eligibility requirements.

If someone’s financial circumstances change, such as receiving an inheritance, they need to notify the Medicaid agency (generally within 10 days). If it is discovered that a Medicaid recipient’s financial circumstances have changed, and they no longer meet the requirements, Medicaid eligibility may not just be withdrawn; Medicaid could demand repayment of the services and / or benefits for which it paid during the timeframe in which the individual was technically no longer financially eligible. These and the other complicated rules of Medicaid eligibility are why it is critical to hire a Certified Elder Law Attorney for Medicaid planning.

Why Proper Medicaid Planning is Essential

With proper planning, families can obtain Medicaid assistance without having to deplete their life savings. Here are some other reasons why proper planning is critical:

  • Protecting the spouse: With proper planning, a spouse who is able to stay at home can keep all of the couple’s assets and much or all income while Medicaid pays for the nursing home. The most important goal is typically to ensure that the spouse remaining at home is able to live the remaining years of his or her life with utmost dignity and not have to suffer a drastic reduction in his or her standard of living.
  • Protecting quality of life: If you are a single or widowed client, the most important reason for you to engage in asset protection planning is for you to be able to enjoy the highest quality of life possible in the event you are forced to enter a nursing home.
    • Families of our clients can use the protected assets to pay for lost or broken hearing aids, dentures, eyeglasses, and electronic equipment; pay for a cell phone bill; replace outdated or soiled clothing; pay for streaming media services; hire a private helper to help with meals, etc.
    • Money that we protect for you in the process of getting you qualified for Medicaid can also be used to purchase services or items for you that are not covered by Medicaid, such as some dental work, incontinence supplies, personal clothing, toiletries, nail trims, and haircuts.
  • Protecting children: Some parents have saved and sacrificed their entire lives and have a strong desire to leave a financial legacy for their children. With proper planning, this goal can be achieved while still qualifying for Medicaid.
  • Protecting disabled persons: There are asset protection strategies that will allow you to protect certain assets for the benefit of a disabled child and sometimes for other disabled family members.

Plan Ahead for Long-Term Care

Medicaid planning can be started while you are still able to make legal and financial decisions or can be initiated by an adult child acting as agent under a properly drafted Power of Attorney, even if you are already in a nursing home or receiving other long-term care.

To begin Long-term Care Planning, Incapacity Planning, Estate Planning, Medicaid planning (also known as Lifecare Planning, Medicaid Asset Protection Planning) right away, please call us now to make an appointment:

Medicaid Asset Protection Fairfax: 703-691-1888
Medicaid Planning Fredericksburg: 540-479-1435
Elder Law Rockville: 301-519-8041
Elder Care DC: 202-587-2797

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About Evan H Farr, CELA, CAP

Evan H. Farr is a 4-time Best-Selling author in the field of Elder Law and Estate Planning. In addition to being one of approximately 500 Certified Elder Law Attorneys in the Country, Evan is one of approximately 100 members of the Council of Advanced Practitioners of the National Academy of Elder Law Attorneys and is a Charter Member of the Academy of Special Needs Planners.