Recent Case Raises Concerns about Certain Transfers of Assets by a Medicaid Applicant to a Community Spouse

Recent Case Raises Concerns about Certain Transfers of Assets 
by a Medicaid Applicant to a Community Spouse:

Many Medicaid applicants who need care in a nursing home have spouses who are able to continue living at home (“Community Spouses”).  There are guidelines that allow a Community Spouse to keep a certain amount of income and assets that would otherwise have to be spent down for the Medicaid applicant to qualify.  This allows the Community Spouse to maintain his or her home in the community while preserving the other spouse’s Medicaid eligibility.  However, the relevant guidelines are complicated and subject to change.  It is not always easy to ensure that a Community Spouse is able to retain the maximum amount of income and assets while maintaining an ill spouse’s eligibility. 

A recent decision by an Ohio appeals court raises concerns about what strategies couples can use to successfully protect joint assets.  The Ohio court held that the transfer of a house from a revocable trust to a Medicaid applicant and then from that applicant to the Community Spouse was improper.  In this case, Atkinson v. Ohio Department of Job and Family Services, the court reasoned that the transfer was improper because it increased the Community Spouse’s resource allowance, which had been determined prior to the transfer of the house.  As a result, the couple was faced with a penalty period during which the ill spouse was disqualified from receiving Medicaid benefits.

Transfers between spouses generally do not cause eligibility problems. The reason for this is that the assets of both spouses are counted when making eligibility determinations.  In addition, a residential house is considered an exempt asset no matter its value.  The Ohio court’s decision to consider the transfer of the home related to the fact that, at the time of the Medicaid resource assessment, the home was held in a revocable trust and not in the name of either spouse. 

In Connecticut, a case called Bezzini v. DSS established that a transfer from a revocable trust established and funded by a Community Spouse to a third party beneficiary upon the death of the Community Spouse is an improper transfer of assets.  Such a transfer will result in a penalty period for the surviving spouse.  The Atkinson case is different because the transfer from the revocable trust was not to a third party.  However, this precedent by the Connecticut courts makes the Ohio case more troubling, despite the fact that the case itself will not change Medicaid policy in Connecticut.

This case also makes it clear that applying for and qualifying for Medicaid is best done with the advice and counsel of attorney who are well versed in all of the issues.  A simple misstep in timing can cause an otherwise effective strategy to cause significant financial problems for the surviving spouse and family.

Couples who have used or are considering the use of revocable trusts as a part of their long term care and estate planning should be aware of the risks that go along with these trusts.  If you want to learn more about how to protect the assets of a Community Spouse or you have questions about Medicaid planning in general, call our office at 888-822-8778.

Categories: Blog, Estate Planning

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