Quite often when counseling clients we must stress the importance of documenting things in writing. One of the planning contexts where that is crucial is in the area of Medicaid eligibility. Specifically, while it usually fairly straightforward to present sufficient evidence that the amount of a claimant’s countable assets are low enough to qualify, it can be much trickier to avoid stumbling blocks based on the claimant’s financial actions in the 60 months preceding their claim. A 2015 case from Michigan is an example of well-meaning family members trying to do the right thing to help grandma but inadvertently doing it in the wrong way. See Jensen v. Department of Human Services, No. 319098, MI Ct. App., Feb. 19, 2015.
In brief, a Medicaid claimant must prove that they did not gift any amount of their assets during that so-called “look back period.” A gift is a transfer for which the individual did not receive fair market value back in return. If it is determined that the Medicaid claimant did make such a transfer, the Medicaid authorities will apply a penalty which is a period of time before which benefits will be paid, calculated according to the gifted amount. Many seniors need assistance with taking care of their activities of daily living and if it is done the right way, a non-spouse family member or other third party can be paid to provide care and other services to the senior via a formal contract, termed a Care Agreement or a Care Contract. Such an agreement is generally permissible under the Medicaid rules subject to certain procedural requirements, the most basic of which is the Care Contract must be in place before services are provided and it must be in writing.
Betty Jensen was an elderly woman living by herself until May 2011, when her dementia progressed to the point where assistance for her was needed. At that point her grandson Jason Jensen hired a non-relative, Teresa Alexander, to start providing care to Betty. That non-relative was hired on the basis of an informal agreement with nothing put in writing. Jason paid Alexander a total of approximately $19,000 for her services. By March 2012 Betty’s condition had deteriorated further and she entered a nursing home. At that time, Betty and Jason entered a written contract for her to reimburse Jason some $1,400 in mileage he had accumulated while taking care of Betty over the last year. Betty also made a gift to Jason in the amount of $28,128.
When the Michigan Medicaid authorities evaluated Betty’s claim, they determined that all three of the payments referenced above should be treated as gifts for which a benefit penalty period of 7 months and 2 days would be imposed. Betty died in the nursing home before benefit payments commenced. On appeal, Jason conceded that the direct gift to him was properly penalized. However, he argued that the mileage reimbursement payment to him and the payments to the third-party caregiver Alexander should not have been treated as gifts.
In delivering its decision, the Court recited portions of Michigan’s Medicaid rules which provide in pertinent part that payments to caregivers should be treated as gifts unless the payments are made where “[t]he services must be performed after a written legal contract/agreement has been executed between the client and provider.” Based on a straightforward reading of the clear wording of the provision, the Court rejected Jason’s argument on both counts. While the Court seemed somewhat sympathetic to Jason’s plight, noting in a footnote that it does not think Alexander’s services were unnecessary or that she was overpaid. Similarly, the Court took note that the mileage reimbursement took place after the fact.
So could the Jensen family have avoided the penalty as to the $19,000 paid to Alexander and the $1,400 paid to Jason? Yes! The Court quite deliberately stated that there was nothing wrong about the payments in and of themselves and that the Medicaid eligibility rules would have been properly adhered to if only there were written agreements in place before Alexander and Jason respectively provided care services to Betty.
Interestingly, the Connecticut Department of Social Services Uniform Policy Manual, which is its “rule book” for adjudicating Medicaid eligibility, does not require such an agreement to be in writing. However, we nonetheless strongly urge that all care agreements in Connecticut be in writing. Why? Remember the presumption is that a transfer is a gift unless there is sufficient proof presented otherwise. It would be extremely difficult to prove the existence of an oral care contract and to confirm the precise terms of that agreement. So always put it in writing!
Please call us at 860-769-6938 if you have any questions about the issues presented above or if you care to discuss any other planning issues with us.
