White & Allen addresses the special needs of an aging population, including medical directives, retirement planning, estate planning, Social Security matters, Medicare and advance planning for eligibility for Medicaid nursing home benefits while preserving as much of the person’s assets and income as possible for his or her heirs
Attorneys concentrating in elder law:
Why Paying Your Child To Provide Personal Services To You In Your Home Can Potentially Make You Ineligible For Medicaid Long Term Care Benefits
Suppose your adult child provides services to you in your home, such as housekeeping, cooking, and assistance with bathing and dressing. In return for these services, you compensate your child a reasonable sum of $1,750.00 a month, reasoning that since you must pay someone to help you, it may as well be your child who you trust. This arrangement allows you to live independently in your home. You have this arrangement for three years over which time you pay your child a total of $63,000.00.
Suddenly, you have an accident or suffer a stroke, are hospitalized, then transferred to a rehabilitation facility. Medicare pays for up to 100 days of such care, after which you apply for Medicaid long term care benefits. The Medicaid agency will likely deny your application because of the payments you made to your child. Why? Because the agency will likely view the services provided to you by your child as gratuitous, reasoning that such services are things which your child would do for you out of the goodness of his/her heart and for which he/she would not expect to be compensated. The unfortunate result is that the payments you made to your child will be considered a “gift” in return for which you did not receive anything of equal value, referred to in Medicaid nomenclature as an “uncompensated transfer of property”.
This situation invokes the “five-year look back rule”, under which any uncompensated transfer by you to anyone within five years of requiring long term care and applying for Medicaid benefits will render you ineligible for benefits for a certain period of time. In this case, the period of ineligibility is 10 months (subject to change in 2014). Worst still, the penalty period does not commence until you are literally broke, having spent all your countable assets, including all but $2,000.00 in cash, to pay privately for your care.
What’s the solution? A well drafted “Personal Services Contract”, which converts what would ordinarily be considered a “gift” into a bargained-for exchange of your property in return for services provided by your child. The contract sets forth the terms and conditions under which your child (called the “caregiver”) will provide assistance to you with day-to-day living activities while you reside in your home in exchange for reasonable compensation. At the time the contract is executed, the services to be performed by the caregiver must have been recommended in writing by your physician as necessary to prevent you from entering a long term care facility. These services can include cooking, grocery shopping, cleaning, housekeeping, laundry, house and yard maintenance, running errands, maintaining vehicles, providing or arranging transportation for physician, dentist appointments or personal shopping, distributing and reminding you to take prescribed medications, and personal assistance such as transferring to or from a bed or chair, bathing, dressing, toileting, eating, hair care, shaving, care of clothing, and other incidental services.
The contract also sets forth the number of hours necessary for the caregiver to carry out the services on a weekly or monthly basis, the interval by which compensation will be paid (hourly, weekly or monthly), that compensation is at fair market value (the amount typically charged by home health agencies in your geographic area), that any asset transferred by you in return for a service provided by the caregiver which is equal to or greater than the fair market value of the transferred asset is a “compensated transfer”, and characterizes the caregiver’s employment relationship with you as either your employee or self-employed.
The rules applicable to Medicaid long term care benefits are exceedingly complex, so it’s best to seek the advice of an attorney holding the Certified Elder Law Attorney (CELA) designation regarding preparing and executing a Personal Services Contract.
The Federal Annual Gift Tax Exclusion Amount Does Not Apply to Transfers Regarding Eligibility for Medicaid Long-Term Care Benefits
Many people mistakenly believe the $14,000 per person, per year, federal gift tax exclusion is the allowable gifting limit for Medicaid-related transfers. Clients often tell us that they transferred assets to a family member under the belief that so long as the gift to any one person is less than the $14,000 exclusion, they will not be penalized for Medicaid benefits eligibility should the need for long-term care arise within the five-year look back period. However, there is no allowable gifting limit for most transfers for Medicaid long-term care benefits eligibility purposes, and an applicant making gifts during the look back period is usually penalized for eligibility purposes. The current rule is that all “uncompensated transfers” within the five-year look back period are combined for purposes of determining the penalty period. For example, consider the recent case of “Millie”, a 75 year old widow with $500,000 in cash. Millie has been making annual gifts since 2009 to each of her three grandchildren of $14,000 under the mistaken belief that doing so will not result in a penalty in the event she were to required extended long-term care and seeks eligibility for Medicaid benefits. She embarked on this gifting strategy on the advice of her son-in-law, a respected accountant. In 2013, she suffered a stroke and now requires extensive rehabilitation care. Medicare and her Medicare supplement policy pay for her care for the maximum of 100 days, at the end of which she still requires extensive assistance with several activities of daily living and therefore cannot be discharged home. When she applied for Medicaid benefits, the caseworker at the county Department of Social Services requested disclosure of all transfers Millie made within the five-year look back period. Millie disclosed that she gifted $42,000 a year beginning in 2009 for a total of $210,000 ($42,000 x 5 years). Millie was shocked when the caseworker informed her that she will be ineligible for benefits for one month for every $6,300 (the 2013 divisor) she gifted during the look back period, or 33.33 months ($210,000 / $6,300). Worst of all, the caseworker informed Millie that the penalty will not start until she has spent down all but $2,000 of her cash, which she can do buying private paying for her care. That is, the 33.33 month penalty will not be imposed until after Millie is broke - a harsh rule indeed. This unfortunate result could have been avoided had Millie sought the advice of a certified elder law attorney.
National Elder Law Foundation Videos:
What is Elder Law?/Daniel Parsons, CELA
What is a Certified Elder Law Attorney?/Michael Kirtland, CELA
Ethics of a Certified Elder Law Attorney/Amos Goodall, CELA
Using a Certified Elder Law Attorney/David McGuffey, CELA
Working with an Elder Law Attorney/Timothy Crawford, CELA
What is Guardianship?/Catherine Anne Seal, CELA
An Overview of Special Needs Trust/Ian Oppenheim, CELA
An Overview of Powers of Attorney/Hyman Darling, CELA
Why Powers of Attorney are Important/Steven Spano, CELA
Medicaid for Long Term Care/Jim Schuster, CELA
An Overview of Advanced Directives/Marta Willager, CELA
What is Capacity?/Kathleen Whitehead, CELA
Introduction to the VA Aid and Attendance Benefit/Howard Krooks, CELA
What Benefits are Available for Veterans?/Howard Krooks, CELA