2015-08-14 Elder Law webinar with Attorney John G. Watts




Welcome to our Q&A on elder law issues. The entire video is above, and the transcript is below.

I hope you enjoy!

John Watts =============

Hello and welcome to our webinar. This is will be on elder law issues. My name is John Watts I’m an attorney in Alabama. I help families all across the state deal with Medicaid, Alabama Medicaid, VA pension, and other elder law issues. Generally when we’re talking about elder law issues we’re talking about, how do we pay for long term care without losing everything that we own.

Mom or dad going to the nursing home, do we lose everything? Do we have to sell the house? Or can we preserve some of that? Can we plan ahead of time so that we can preserve?

We’ve got about five questions we’re going to answer today, today is August 14th, we’ll do this again on the 21st. If you have questions feel free to put a comment below, you can go to our elder law site it’s called, Alabama Elder Lawyer or you can even call us 205-879-2447 and ask to speak to Carolyn and let her know what’s your question is.

I believe all of our questions have to do with Medicaid today, I’m sure next week we’ll have some on the VA pension.

First one is, my mom wants to give me money to buy a house but if she needs a nursing home within five years Medicaid will take my house. Is doesn’t seem fair as this is really an advanced on my inheritance?

Couple issues, let’s talk first of all about this five-year because this question does reference to five-year. If we apply for Medicaid right now August 2015 and we qualify the Medicaid looks back in time five years, what are they looking for?

They’re looking for any type of “gift”. What are they do with a find a gift? Then here we are in August 2015, they’ve looked back five years, they then will penalize as going forward and say, “Hey, you had to pay for your own nursing home care.” Does a Medicaid picks up the cost of the nursing home?

The penalty is now you got to pay it all yourself. Now, even when Medicaid pays it generally not always, but generally. Our income is going to be required whoever is actually in the nursing home. They’ll have to use their own income, and then Medicaid pays that different. We have a $1000/month in income, nursing home six grand and Medicaid is going to be paying five grand a month.

We apply now and we qualify, they looked back see a gift, then they’re going to penalize us going forward. The question is, if my mom gives me money to buy a house will Medicaid take the house? Let’s pick a number let’s say it’s $58,000 that she gives you to buy a house. She qualifies and she applies right now, and in our last webinar we talked I believe a good bit about that. When do you apply? When is it appropriate? When is it smart to apply?

They looked back in five years and see that $58,000. What’s the penalty going forward? It’s that amount $58,000 divided by $5800, and that’s the idea of the concept is that’s the cost of the nursing home in Alabama. That would be 10 if our math is right. Ten months going forward your mother would have to pay for her own nursing home care even though she’s really “broke” because she qualifies for Medicaid.

Do they take your house? No, they don’t take your house but they’re going to penalize your mother and make her pay for the next 10 months.

Now, if there other gifts in that five-year period then that penalty would be long. One way to get around that penalty is that the gift is return so you could always give the money back to your mom. Now if you don’t have the money, are they going to take your house? No, they’ll just penalize your mother.

It’s not illegal to give away assets in the previous five years from when you need Medicaid, it just means there’s going to be a penalty going forward.

What’s the lesson?

The lesson is anytime somebody who even remotely could need a nursing home. Anytime they’re giving away assets, it could be money, it could be a house, it could be a car, a boat, or whatever it is. They need to have a plan. I’m giving this away but what happens if I need the nursing home? What happens if I need to get a Medicaid? Do I have enough money to pay for this? Have I made the arrangements, maybe I have a long term care insurance, maybe I have a Medicaid Compliant Annuity, what is my plan? Have I set up a trust that will work for me?

We see the family getting trouble when they don’t have a plan, because we don’t always have the money to give back and if it’s been used by a house, maybe you can get a loan on house, maybe you can’t, but they’re maybe no money to get to mom. That’s going to make it really painful, which is going to make privately paying for a nursing home difficult even though she qualifies for Medicaid, which means their assets have been reduced significantly.

You got to make sure you have a plan, if you find yourself in this position like the person who wrote this question then you’ve just got to sit down with the lawyer who understands Medicaid in your state and say, “Okay, what do we do now?” We can usually fix things. I wish people will come to me ahead of time, but usually they call my firm when, “Mom is in the nursing now. What do we do?” Or they wait ’til they run out of money. Now what do we do?

It’s better if you can have time to plan it but even if you don’t, even if it’s a crisis situation. Usually we could still make that work.

Hopefully that answers that question.

Our next question is, my mom is in nursing home and needs Medicaid, six years ago she set up some type of trust and is receiving dividends and interests from the trust investment, should we turn those off? Does she have to report this to Medicaid?

I assume by this the person is asking about turning off income or the trust itself.

It’s six years, so that’s good, that’s beyond that five-year point but that’s all you’re going to do is good if it’s the right type of trust. If it’s a revocable trust and let me get my trust here, treasure chest, a revocable trust, the lit is open. Six years ago to put all these investments in.

Medicaid says, this is still her money. She has to used all of that. That’s what’s called an available resource, but if it’s a right type of Medicaid Compliant Trust, particular type of irrevocable trust then the lit is shut and that is not her money anymore.

Since that’s beyond the five years Medicaid would not know about that. Here’s the problem, the fact that this trust is giving her income or dividends then at a minimum Medicaid is going to say, She at least has that as income and she’s going to continue to use that. You can’t just turn that off when she needs Medicaid because either it’s her income or it’s not.

If it’s her income then we’ve got to count it just like Social Security, a retirement, pension type income, annuities, whatever the situation may be that would be counted. Sometimes what Medicaid does is I say, “Well, wait a minute, if she can get this income then we think she really still has control over these assets.”

Now, we have to look very carefully at the trust agreement, what is it say, here the trustees, was it allow? Generally when we do these types of trust we do not have any income going back to mom or dad, because my concern is whether it’s right or wrong for Medicaid to do this if they see any income coming, then they’re going to try to reach in to that trust and grab everything and say, “Hey mom, that’s all your money.”

The six years is good but we have to know what type of trust and I think at a minimum we’re going to have to continue to count that income unless there’s a legitimate reason not to.

Our next question and this is a very common question, as a matter of fact that church I was just speaking with the CPA about this very issue. CPA said I can give away 14,000 a year to my kids and my grand kids or Medicaid follow the tax laws on this. Because the CPA, very legitimately, it’s completely accurate things.

Look, you give away a certain amount of money to a person this year it’s 14,000 and you don’t pay any taxes on that. What they mean is you don’t pay any gift taxes on that. You can just do that and there’s no problem and that’s true. What the CPA said is absolutely correct.

The question comes up, let’s say that we’re giving away 14,000 a year to three kids less what 52,000 a year, 42,000, whatever the math is on that I guess it’d be 42,000. We’re giving away that much every year, we’ve been doing that for five years. What’s that like, $210,000 or whatever it is.

We’ve been doing that and then we apply for Medicaid and we qualified, they’re going to look back five years and they’re going to see all that money giving away. Family is really struggle with this and I understand because it gets confusing they go, “Wait a minute, the Federal Government said I can give away 14,000 a year.” It’s true under tax law.

The question was, will Medicaid follow the tax laws? Medicaid doesn’t really follow tax laws, the tax laws don’t apply to Medicaid. Medicaid is going to say, “That’s a gift.” You qualified now. You look back five years. We see all these $200,000 worth of gifts and $14,000 increments they’re going to say, “That’s a gift,” and we’re going to take that, we’re going to divide it by 58,000 and whatever that math is that’s going to be the amount we’re going to be penalized.

It can be pretty significant and it’s not that Medicaid is wrong and the IRS is right, or the Medicaid is right and the IRS is wrong they’re both right. It’s just different rules. They were the almost be like saying, when you’re playing a sports game can you grab the ball and run with it?

Usually in football you can, but what about in basketball? That would be traveling, that would be a violation of the rules. Somebody goes, “Well which is right, is it football or …?” It depends on which game are you playing.

If you’re dealing with taxes then the IRS gives you the rules. If you’re dealing with Medicaid, paying for a nursing home, longer term care, then you got to play by Medicaid’s rules. If you grab the basketball and run down the core and dunk it, and the referee calls you a travelling, but in football that would have been okay. It doesn’t matter about football you’re playing basketball.

Have to know which rules you’re following and this is why it’s so critically important to make sure you have a team in place. If you’re making transactions and transfers, and gifts, make sure you understand the consequences of those because you’ve got to know, am I dealing with taxes, am I dealing with Medicaid, am I dealing
with the VA pension, what am I dealing with?

I hope that that answers a question. It’s fine to give away money and the tax code if you’re following the code, but it has nothing to do with Alabama Medicaid.

Is a gift to a church or a charity considered a gift under the Medicaid’s look back?

That’s a five-year look back rule. Let me give you the technical answer, then we’ll talk about practical answer. Technically, you applied today August 14th 2015 and you qualify for Medicaid, they’re only back five years and say if there any gifts whoever it was made it. They’re going to total all those gifts out divided by 5800 and the answer is, that’s how many months your penalize going forward.

Technically, that’s what they did. As a practical matter, if we’re talking about your normal church contribution that I have not seen Medicaid try and say, “Well that’s a gift and we’re going to penalize you.”

For 47 years you’ve been going to this one church, and the last 10 years you give $200 a week to church, $800 a month. Medicaid might look at your income if you have $1000/month in income I might say that didn’t quite seem right. If you have $5000/month in income that’s going to be different. Let’s lower the number say it’s $50 a week, $200 a month that’s $24000 a year. They generally are not going to complain about that because you could show a pattern every month, give the same amount to church.

Now, what if you started getting sick and suddenly you go from $200 a month to $2000 a month and your son is the minister there. It just doesn’t look right. It looks like what you’re doing you say, “Let me get my money out of my hands into the church.” How am I supposed to do that? But if it’s just a normal you show this pattern every month, this is what I do, then normally you’re going to be okay.

With charities it should be the same way. In my experience they’re little less likely to catch any breaks on charities as opposed to church. Particularly if the donations are not regular type donation, or if you’ve got some connection with that charity. Your son runs this charity, your daughter is the chief fundraiser for some other charity and you suddenly start giving a lot of money to me. Medicaid is going to look at that and say, “What are you doing?” Because technically any gift you make the presumption is that was done to keep that money away from Medicaid.

If you do this not illegal as long as you tell Medicaid when you apply, it just means they’re going to penalize you after they look back in time. Often a charitable
donation will be considered a gift, and sometimes it’s very, very obvious. Somebody says, “We got $4 million, I’ll give $500,000 to my college.” That’s a gift. You’re not get anything exchange and just a warm feeling in your heart doesn’t count as a fair exchange. Hopefully that answers that question.

Our last question is, we pay a caregiver for mother in cash and the caregiver helps mom with activities of daily living dressing and things like that. If we need Medicaid for nursing home, will this cash money be considered a gift when it was really to pay for her care?

In the last question I talked about just technical answer, practical answer. Technically speaking to pay a caregiver in Alabama and I think this is actually violates federal Law the way Alabama interprets this rule. Alabama says, you’re going to have a written contract it’s got to be for services that have been just rendered, so another we don’t pay somebody now for something they did three years ago. It’s got to be, you do the work, you get paid, you do the work, you get paid.

Then I say, a doctor has to sign off on that caregiving. Basically say, but for this caregiving person be in the nursing home. I don’t think federal law puts that last requirement and I think Alabama has reached the little too far with that.

Understand the purpose.

What they’re trying to do is say, look you can’t just get rid of all your money and call it “caregiving” I get that. It’s got to be legitimate. I’ll give you a couple extreme examples.

There’s some places where supposedly this is allowable not sure, but definitely not in Alabama but somebody is rocking a law and there you go, oh I’m going to need nursing home next month, and so right before that they take 500,000 other, $502,000 net worth and they pay it to their staff and they say, “I want a lifetime caregiving contract from you, where the rest of my life you will take care of me, you’ll come visit me in the nursing home, you will give me love, affection, you’ll call me on Saturday nights,” whatever it is.

Oh well, no, that’s the obvious thing that somebody is going there, is they’re trying to give away this money but not count it as a gift because Medicaid looks back in time five years. What Medicaid says is, “No, no, no, no, you can’t do that. You can’t pay somebody now for some future services.” You pay them for work they’ve actually done and not way back in time.

The question is we’ve been paying in cash, what’s Medicaid going to do with that? If there’s no caregiver contract, paying somebody in cash, talk to your accountant probably should be doing that, then it’s very likely Medicaid is going to say, “That
was a gift.”

Maybe you’ve got caregiving records, you keep in the log book, and Susie the caregiver or Billy the caregiver, here she comes in and they write down, well here’s how your mom is doing, here’s what I did. Maybe, you can show, “I’ll take money out of the ATM,” the next day they come, “I give them the money.” Maybe you can do that. It’s a difficult position. If we’ve already done that in the past we’ve got to deal with it and try to document that, so that Medicaid understands we’re not playing any games here, this is legitimately for services rendered. That whole gift thing is exactly what it says a gift. It’s not paying for services. If you buy a car, that’s not a gift unless you’re paying more than what the car is worth.

Paying a caregiver or a comfort keepers, visiting angels whoever it may be, that’s not a gift. You’ve got to be able to document that. Now, going forward, my suggestion is based on family is coming to me particularly in a crisis situation is, don’t do that, don’t be paying people in cash and there’s not written agreement. Now, you need a formal written agreement even though I think Alabama has gone too far with this, I think that it makes a lot of sense to get the doctor involved to say, “You know what, your father would have to go to a nursing home if your cousin Andrew didn’t take care of him.” Okay? The doctor says that.

If it’s not true, don’t ask the doctor to do it but if the doctor knows your father knows that he can’t dress himself, can’t get to the bathroom, or has dementia somebody is got to be there then that doctor she’ll sign that document for you.

Do everything above board, make a very clear, so that Medicaid says, “Hey, what happen to this money?” Here it is, here’s my contract, here is the hours that cousin worth, here’s the rate we paid him, and that is $12 an hour, if we got comfort keepers that would be $17 an hour. They’ll make the right higher than what the market rate is because you’re just asking for trouble with that. If anything we like to make the right lower, be very conservative. Medicaid sees, “Okay, this is very, very legitimate.”

I know today it was focused mainly on Medicaid, next week I think we’ll have a mix of questions because we have backlog of questions we haven’t finished up. Definitely let us know if you have a question you can put it in the comment below, you can go to Alabamaelderlawyer.com or 205-879-2447. If you live in Alabama and you’re watching this, or you have family member in Alabama and you have questions about Elder Law, VA pension what’s also known as VA Aid & Attendance, Alabama Medicaid, feel free to let us know.

I should mention this, we also will cover in this webinar we do every week general state planning question, it’s not really our focus but to do elder law that’s up here and the state planning is down here, so we have to understand the state planning but most of our questions, and most of our clients are more elder law based. Also, special needs trust, so may be you have a child that is disabled, you want to be able to give them money or leave them money to an inheritance. I kick them off government benefits or maybe I’ve been some terrible tragedy, there’s a lawsuit, and the person receiving the money is on Medicaid or SSI and how do we do that without them losing their benefit. We’ll talk about that as well.

If we can help you in any way just go to Alabama Elder Lawyer, or 205-879-2447. Thanks for watching and we’ll see you next week.

Thank you.

John G. Watts

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