A college education, some may agree, is an important life transition for our children. The challenge of paying for college can present a barrier to making the dream a reality for many. Grandparents may want to help their children and grandchildren make the dream a reality and contribute financially when they are able. In fact, I hear about these great stories during daily communications with folks applying for NY Chronic Medicaid (Nursing Home). Unfortunately, usually I hear their stories after their applications for Medicaid have been denied and they are seeking advice.

Wait....Medicaid can decide what you spend your money on????!!!!!

The short answer is NO, Medicaid cannot decide how you spend your money...but, understanding how Chronic Medicaid views large financial transactions is important to prevent expensive nursing home bills or legal fees associated with fighting a Medicaid application denial.

Before we continue...I want to stress that there is NO Medicaid rule that says that you cannot spend your hard earned money on education, house repairs, donating to charities, taking a vacation, visiting the casino, are whatever else your heart desires. SOOOO the question remains, why would someone's Chronic Medicaid application be denied for paying for a grandchild's college tuition????

The 5-year Look Back

The Chronic Medicaid application process requires a 60-month review of assets and transactions. Assets include bank accounts, stocks, bonds, property, business, life insurance, etc. The following details are reviewed by Medicaid:

1.) All transactions of $2,000 or more in the prior 60-months (receipts and proof of services rendered required)

2.) Fair-market value of all property

3.) Source of any consistent deposits (monthly, bi-monthly, semi-annual, annual etc.)

Medicaid will question any transactions over $2,000 that occurred during the 5-years prior to the date of need. Any transactions that were not directly related to healthcare and that were made by the applicant OR anyone acting on behalf of the applicant, will be further reviewed to determine if assets were depleted to prevent Medicaid from requiring funds be paid to the nursing home. Adverse determination could result in a penalty in the amount of of these transactions, meaning you will owe the nursing home the amount of this penalty.

These checks-and-balances are in place to ensure the sustainability of the Chronic Medicaid program. Let's take a look at some specific examples that I have encountered over the years...

Transactions that can be Questionable or Not Allowed

Transaction #1: Paying for home care:
An applicant's bank statements demonstrated weekly cash withdraws of $350, every week for 3-years, totaling roughly $60,000. The applicant explained that these transactions were paid to a care-taker who helped with activities of daily living in her home; however, there were no receipts.

The above scenario is all too common. Avoiding a penalty will require the applicant to write a letter explaining the transactions. These transactions will need to be validated with receipts of payment (including name of care-taker) and copies of the care-taker's schedule that correspond to the weekly payments.

If the receipts and schedule cannot be located, a statement from the caretaker and copies of a 1099 can be provided.

A statement alone may help avoid a penalty; however, more often than not it will not.

Transaction #2: Placing home in a trust:

An attorney meets with a 75-year old who wants to pass down the family home to her daughter. The attorney creates an irrevocable trust in the daughter's name; this process automatically transfers the home to the daughter. A year later the 75-year old finds herself in a nursing home. She has limited income and no assets except a few thousand dollars in the bank, she appears to be eligible for help with her nursing home bill, until she mentions the trust. The home is worth $250,000 and because it was entered into the trust just a year ago it will create a penalty of about $220,000.

BUT... a penalty can be avoided by:

1.) Take the home out of the trust and put it back in the applicant's name (my personal opinion is that the attorney should not have suggested transferring the home based on age alone).

2.) The daughter purchases the home at fair-market-value. These funds would be deposited into the applicant's bank account and can be used toward the nursing home bill.

3.) Create the trust by age 55-60. Now this is my personal opinion. The future cannot be predicted; this approach may or may not work. The health of the applicant should be considered; however, continued good health between ages 55-65 is more probable than after age 65.

4.) You can do nothing...which does happen. This will result in a penalty of $220,000 (based on the above situation) which will be due to the nursing home. If these funds are not paid the nursing home may place a lien on the home or pursue legal action.

My tip: Pre-plan

Transaction #3: Donations

This does not happen as often but it is worth noting, large donations to a church or organization will be questioned and almost always create a penalty if done in the 5-years prior to needing Chronic Medicaid.

One gentleman donated randomly over the five-year period to a church as a thank you to the church for helping him with some personal matters. The total in donations was about $45,000. A penalty was assigned by Medicaid because the donations were random in amount and occurrence AND, of big importance, the applicant was not in good health.

If not in good health, it could be perceived that funds were "giving away" in order to be eligible for Nursing Home Medicaid.

Transaction #4: Gifting Home/Changing Deed:

If I had a dime for every time I have seen this I would be rich. It is common for an applicant to change the title of the deed into the name of a child and/or to "gift" the home for $1. There are numerous reasons one might do this, regardless, this type of transaction within the 5-year-look-back will most certainly result in a penalty. Gifting or selling a home for less than fair-market-value is not allowed, refer to "transaction #2" for solutions.

Note: if the home was sold for less than fair-market-value due to the market or condition of the home, Medicaid will reduce the asset value with the proper documentation.

Transaction #5: Paid for a Family Member's

College Tuition:

The gift of education is priceless, the cost, not so much. It is often with love and pride that a child's or grandchild's college tuition is paid for; so why so much scrutiny when applying for nursing home Medicaid? A past client of mine was surprised when hit with a Medicaid penalty of $85,000. She had paid for her grandson's college four-years ago and was in perfectly good health- with no pre-existing conditions...for an 80-year old she was possibly in better health than me. But there was no way that funds could be returned, so what was she to do? I assisted her with an appeal of the denial or in Medicaid verbiage, requested a fair hearing.

The applicant attended the fair hearing with me, and over the course of 18-months of fighting the case, the applicant won the appeal and the penalty was overturned. Honestly, this outcome is not common because most 80-year old's have a medical condition that could foreshadow a stay in a nursing home. The applicant was able to prove through medical records that she was in good health when she made the transaction and that her intentions were not to deplete funds to become eligible for Chronic Medicaid.

These are just a few examples of transactions that will be reviewed by Chronic Medicaid. It is fair to say that the rules are complicated and the advice I give to all that ask is 1.) pre-plan and 2.) pre-plan between ages 55-60-years old.

Medicaid planning is one of my favorite topics because there is so much misguided information out there and there is actually more that can be done than folks think. Reach out to me today to set up your Medicaid Planning Consult:

[email protected] or 607-661-6911 or fill out a consult request below.

I look forward to working with you!

Nancy Smallwood