Affording Long-term Care: Challenges for a Growing Population

The Bencher | September/October 2022

By Cheri Wendt-Taczak, Esquire

Chances are you know someone who is elderly, meaning at least 65 years of age, or who has a disability, regardless of age. It would be surprising if you do not since the combined total of elderly Americans and non-elderly Americans with disabilities accounts for approximately 32% of the U.S. population and is expected to rise in coming years.

This subset of the American population, which collectively constitutes our elder law client base, often encounters an array of complex legal issues, including special needs planning, guardianship, elder abuse, and Medicaid eligibility/planning and appeals. Elder law attorneys help these individuals and their families navigate these issues. Often, elder law matters involve helping the client determine ways to afford, and secure, long-term health care (LTHC).

Affording health care in the United States is a challenge. Medicare will pay for certain expenses incurred by an elderly or disabled person, such as a brief stay in the hospital and for skilled nursing care for up to 100 days. After that, patients must pay out of pocket or find some other way to pay for LTHC costs. Unfortunately, one could rather quickly deplete one’s lifetime savings paying for nursing home care, which costs between $6,000 and $25,000 per month, depending on the duration, type, and location of the care provided.

Relying on other family members or winning the lottery are usually not viable options. An alternate solution is to try to qualify for Medicaid benefits to pay for care not covered by Medicare or supplemental insurance. Those who find the Medicaid rules and application process overwhelming may turn to an elder law attorney for help through the various aspects of the process.

While dabbling in the practice of elder law is certainly not recommended, you may find having a little background on the topic helpful if your representation will impact the assets of your client or your client’s loved one(s). You don’t have to be an elder law attorney to help. We will explore a few sample scenarios in which elder law issues may crop up in other legal practices. First, here is some introductory information on Medicaid.

Medicaid Eligibility

Medicaid, also known as Medical Assistance, is a federal benefit program administered by the states to provide medical insurance coverage for long-term care in nursing homes as well as certain other institutions, and as part of the home- and community-based services program. Medicaid is a means-tested program, meaning that the applicant/recipient must meet certain medical criteria and must not exceed strict financial criteria to be eligible for Medicaid benefits.

To be financially eligible, at the time of application and at all times during care, available assets must not exceed certain state-determined thresholds. When applying, an applicant must report all assets, including all income and other resources to which the applicant and his or her spouse, if any, are entitled. The other resources or “countable assets” include all property of value, with a few exceptions as described below, to which an applicant has an interest, has access to, or can convert to cash. Up to 60 months’ worth of bank statements and other supporting documentation must also be provided to support the application. This information provides the state with a “snapshot” of the applicant’s current and past financials, which the state uses to determine, in part, whether the applicant intentionally reduced assets through sale, transfer, or spending in anticipation of the need for Medicaid assistance.

If an applicant’s or recipient’s countable assets exceed the threshold, a penalty period will be imposed, during which time an applicant or recipient will have to pay out of pocket for the cost of care. Likewise, any transfer of assets for less than fair market value may be penalized unless it is shown that the transfer was not made in anticipation of needing Medicaid coverage. 42 U.S.C. § 1396p(c)(1)(B)(i).

The length of the penalty period essentially equates to the asset excess divided by a monthly divisor representing the state’s average nursing home care. 42 U.S.C. § 1396p(c)(1)(E)(i). For example, if an applicant’s assets exceed the allowed threshold by $27,000 and the state’s divisor is $9,000 per month, then he or she would have to pay out of pocket for his or her care for three months.

Medicaid looks at current countable assets as well as those transferred away during the relevant “look-back” period, usually the past 60 months. So, individuals expecting to need Medicaid benefits in coming years should be careful about the transfer of any assets for less than fair market value during that “look-back” period.

Refusing new income or assets can be equally problematic. Medicaid imposes the penalty period on those who game the system by rejecting pension income, disclaiming inheritances, failing to accept or access a personal injury settlement, diverting a tort settlement to a trust in which applicant is the beneficiary, or failing to take legal action to enforce an unpaid court-ordered payment, such alimony or child-support. Center for Medicare and Medicaid Services Transmittal No. 64, § 3257.

Not all transfers are subject to the penalty period. For example, uncompensated transfers between spouses, transfers to a disabled child or to a trust established for the sole benefit of a disabled child, and transfers to a trust or another person for the sole benefit of the spouse do not incur a penalty period. 42 U.S.C. § 1396p(c)(2)(A).

Certain assets are also exempt from being counted as an available resource. For instance, the applicant’s vehicle, household goods, personal effects, and burial spaces for the applicant, his or her spouse, and children are excluded from the asset inventory. 42 U.S.C. § 1382b(a)(2). One’s primary residence is also an exempt asset so long as the applicant has the (subjective) intent to return home following the period of long-term care. 42 U.S.C. § 1382b(a)(1). While one’s home may not count toward eligibility, it may be subject to estate recovery upon a Medicaid recipient’s death. States may file a claim against a deceased recipient’s estate to recover reimbursement of services provided to those over 55 years old. 42 U.S.C. § 1396p(a). To avoid estate recovery, some naïvely think they can protect their home by putting it into trust or preemptively conveying an interest in the home to a family member, such as a child. These tactics are fraught with potential problems and must be employed with great caution!

Sample Scenarios

To demonstrate how a non-elder law representation may touch on elder law issues, here are a couple possible scenarios to consider:

Scenario 1: Mark, 70 years old, seeks help from a business attorney to draft a $150,000 loan to his son who needs funding to start a business. Mark is healthy, but his wife, Mary, is 67 and has had health issues in recent years and was just diagnosed with dementia. Their daughter has also asked if Mark and Mary can loan her $30,000 so she can put a down payment on her first home.

If Mary later applies for Medicaid benefits, any loan agreement executed within the “look-back” period will be subject to scrutiny by Medicaid. Because Medicaid considers the assets of both spouses, the loan between Mark and his son must be reported to and reviewed by Medicaid, regardless of whether the loaned funds were jointly owned by both spouses or owned by Mark alone. Additionally, to avoid a determination that the loan was made for purposes of qualifying for medical assistance, the loan agreements must contain repayment terms that (i) are actuarially sound, (ii) provide for equal payments during the term of the loan (i.e., no balloon payments or deferral); and (iii) do not allow for the cancellation of the debt upon the death of the lender. 42 U.S.C. § 1396p(c)(1)(I).

The nature and terms of loan agreements were at issue in the recent case of Underwood v. Zucker, 141 N.Y.S.3d 622 (N.Y. App. Div. 2021). In Underwood, the petitioner appealed a determination by the New York Department of Health that she was ineligible for Medicaid for a penalty period totaling 22 months due, in part, to loans she and her husband made in years prior to her 2016 Parkinson’s disease diagnosis and February 2018 Medicaid application.  

Fortunately for the petitioner, the court found that her husband’s February 2014 loan of $150,000 to fund one son’s new yogurt business was not made in contemplation of needing Medicaid. The loan documentation was proper and required monthly payments, and the son made all required payments until the business filed for bankruptcy. Also, the son paid all proceeds from the sale of the business’ equipment and other assets to the husband to satisfy as much of the loan as possible.

The outcome regarding a $10,000 loan in 2014 to the petitioner’s other son so he could purchase a vehicle was not as favorable. The loan terms complied with Medicaid requirements and the petitioner’s son initially made the requisite monthly payments (totaling $2,400), but he ceased payments once the petitioner needed long-term care. Therefore, the court found the unpaid balance constituted an uncompensated transfer that was subject to the penalty period. Underwood v. Zucker, 141 N.Y.S.3d 622, (N.Y. App. Div. 2021). The case demonstrates the critical importance of defining and enforcing loan terms.

Scenario 2: Polly, 75 years old, engages an attorney to change the title of her home. Polly wants her daughter, Julie, age 40, to ultimately inherit her home, and she heard good things about using a life estate to bypass the probate process (and gift tax). She is also considering transferring title outright now (for $1), even though she intends to continue living in the home. At the time she engages the attorney, Polly is healthy. She had battled cancer when she was 60, but it has been in remission in recent years.

Generally, an outright transfer from parent to child within the look-back period would constitute an uncompensated gift for which a penalty period could be imposed if the parent subsequently applied for Medicaid benefits within the look-back period. But, here,  if Polly’s cancer returned and she ultimately needed nursing home care, and if Julie lived in the home for over two years to serve as Polly’s caregiver during a new cancer battle, then the transfer would not be subject to the penalty period. 42 U.S.C. § 1396p(c)(2)(A).

If Polly opted to proceed with the life estate deed, care must be taken in drafting the deed and she should obtain counsel on the potential impact of the conveyance. Conveyance of a remainder interest for $1 would be considered a transfer for less than fair market value, thereby making it subject to a penalty period if the transfer occurred within the look-back period. Additionally, a life estate deed with powers, which would allow Polly to mortgage or sell the property without Julie’s consent, could result in a Medicaid lien, meaning it would be subject to estate recovery upon Polly’s death. To avoid estate recovery, the life estate deed should only give Polly an absolute and exclusive right to use the property during her lifetime, but not to dispose of the property without Julie’s involvement and consent.

This article addressed only a small handful of Medicaid financial eligibility challenges this vulnerable population may face. Beyond the few legal issues mentioned in this article on how Medicaid may touch the lives of our clients, as well as our family and friends, many others exist.

Increasingly, the elder and disabled community are going to need our help to navigate legal issues and avoid financial landmines. We should help however we can. To that end, if your legal practice touches on your clients’ income or assets (your legal fees aside!), you can provide valuable service to this community. You can help by understanding, generally, how your legal representation may affect your client’s future Medicaid eligibility; asking questions to ascertain whether your client or a family member may soon need long-term care; creating awareness about Medicaid eligibility and other elder law issues when counseling your clients; and, as necessary, referring your clients to a local elder law attorney for further guidance.

Cheri P. Wendt-Taczak, Esquire, is the founder of the Law Office of Cheri P. Wendt-Taczak, LLC in Annapolis, Maryland. Her practice focuses on tax controversy, estate planning, and elder law issues. She is a member of the James C. Cawood Jr., American Inn of Court.

© 2022 Cheri Wendt-Taczak, Esquire. This article was originally published in the September/October 2022 issue of The Bencher, a bi-monthly publication of the American Inns of Court. This article, in full or in part, may not be copied, reprinted, distributed, or stored electronically in any form without the written consent of the American Inns of Court.