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SUCCESS STORY OF THE MONTH – GRANDCHILD YELLS “HOORAY” FOR GIFT THAT MEDICAID SAYS IS OK

This is a case where a client took advantage of one of the exceptions to the long-term Medicaid transfer penalty rules to shift the burden of the cost of care to Medicaid while helping fund her grandchild’s college education.

Elderly single client (who has limited resources) has been paying her son to take care of her, but her health declines to the point where skilled nursing home care is needed. Unlike many states whereby caregiver contracts are routinely used to reduce countable resources to the long-term care Medicaid countable (some assets do not count) resource limit ($2,000 in Texas if the Medicaid applicant is single). Texas has taken the position that a child has a duty to take care of a parent without pay (although there is no filial responsibility law in Texas as there is in many states whereby the child is actually financially responsible for the care of his or her parent). Thus, in Texas, the payments to the son are presumed to be uncompensated transfer which penalizes (Medicaid ineligibility) the Medicaid applicant for a period of time based on the amount given as the government presumes the payments were made for the purpose of getting the government to pay for care. The son could appeal the likely denial by saving the payments were done for purposes other than to qualify for Medicaid, but the government will presume guilt which would likely cause the need to appeal without guarantee of success. If client becomes eligible for Medicaid, then she would only need to pay her income (less her Medicare B and D premiums, Medicare Supplement premium and a $60 personal needs allowance) and the government would be responsible for the excess of the nursing home care costs and drug costs. However, if the “gifted” funds are fully returned by the son to his mother (the Medicaid applicant), then this would “undo” the transfer eliminating the penalty – which is what we suggested to the son. Of course, the return of the funds results in the applicant then having too much resources. The applicant then had several choices ranging from simply paying for her care and other bills to purchasing a non-countable resource. However, the client chose another option – using an exception to the transfer penalty rules. In this case, the applicant has a grandchild (son’s child) under 21. Pursuant to the Texas long-term care Medicaid rules (unlike Supplemental Security Income rules), transfers by the beneficiary’s parent, step-parent, spouse, grandparent, brother, sister, uncle or aunt, whether related by whole blood, half-blood or adoption, to an irrevocable educational savings account is an exception to the transfer penalty rules even though the transfer was made during the five year look-back period. It should be noted if there is any possibility that the contributor could get their money back, then the contributed funds are still counted as a resource.

Since many 529 plans and other educational savings plans are revocable, Texas elder care attorneys have simply used Uniform Transfer to Minors Act (UTMA) accounts (which by definition are irrevocable) which are available at most financial institutions. The transfer from the Medicaid applicant must be made directly to the UTMA account established for the benefit of the grandchild. If the transfer had been made directly to grandchild who then set up the UTMA, it would be subject to a Medicaid transfer penalty assuming the transfer to the grandchild was made within five years of the application.

So, in this case, the transfer penalty was eliminated if all funds “gifted” were returned and countable resources were reduced to the $2,000 resource limit by the applicant simply transferring the equivalent funds to an UTMA she established for grandchild.

If interested in learning more, consider attending our next free “Estate Planning Essentials” Workshop on either Saturday, March 16, 2019 at 10:00 a.m. or on Thursday, April 4, 2019 at 1:00 p.m. by calling us at (214) 720-0102 or signing up online at www.dallaselderlawyer.comor by clicking here.

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