An interesting take on Medicaid planning

By Kevin Wedmore

A2Z Annuity Marketing


While I will probably revive the question about the ethics of Medicaid planning, I thought a review of the courts' opinion on the subject would be a good starting point to my argument: We too often see entire estates disappear into the vast chasm of health care costs when rules exist to protect these same estates from such a fate.

To set the picture, a number of court cases have ruled on a scenario whereby someone with Power of Attorney (POA) purchases an annuity to defer some of the costs of his parents' nursing home stay, only to be told by local caseworkers that since his parent hadn't made the transaction while he [the POA] was mentally competent, the son's purchase of the annuity would be viewed as an unallowable transfer. The penalty for such a transfer was ineligibility for Medicaid assistance for many months.

The courts' rulings, not surprisingly, are that the POA (or guardian or conservator) should be allowed to engage in Medicaid planning (and for that matter, estate or tax planning) because that is what a prudent individual, if able, would do. Regardless of if the decision to engage in such planning is included in legal documents, it is expressly implied unless otherwise excluded. This is often referred to as "The prudent man rule."

The fact is, many seniors don't engage in this type of planning because no one is helping them with it. They or their children meet with a social worker only to be told that they have too many assets and must "spend down" what they have to qualify for Medicaid. The caseworker doesn't tell them what they can spend their money on, only that they have to spend the funds. The natural inclination at that point is to spend it on care, so subsequently, some 80 percent or more of people in nursing homes die impoverished. Helping your clients understand what the rules are in this situation is no different than a CPA helping them understand the deductions that allow them to pay fewer taxes.

But now we point to a different ruling; one that is often overlooked but could have dire consequences for your clients. In the Illinois case of In the Matter of Guardianship of Mary Jane Connor, 170 Ill. App. 3d 759, 525 N.E. 2d 214 (1988), the Court held that the guardian had breached its fiduciary duty by failing to investigate and pursue the ward's eligibility for governmental benefits, resulting in the unnecessary dissipation of the ward's assets. A guardian or conservator, as well as such fiduciary's attorney, should be wary of the holding in the Mary Jane Connor case and be concerned about the possibility of being held personally responsible for failing to attempt to obtain Medicaid eligibility for the ward. In other words, the Court held the guardian personally responsible for failing to pursue government benefits and spending down the assets quicker than what would have been required if they had planned properly.

So now you have the other side of the coin: You now have a court saying that failure to pursue options that would reduce the strain of expenditures on someone's estate is cause for personal liability. Coupled with "The prudent man rule," this should encourage us, as planners, to make health care planning a part of any estate plan we might discuss with our clients.

What does all this mean? It means that we should be active in making certain that our clients and their families understand what options are available to them when it comes to paying for long-term health care costs. Whether or not the family chooses to take advantage of the deductions and exemptions available is up to them... but there is a possible penalty to pay if such actions are not taken.

Medicaid planning has progressed over the years from those who really were looking for ways to beat the system to those who are genuinely concerned about the erosion of cash that is wiping out our seniors' savings and retirement funds. As planners, we often talk about the trillions of dollars that will be passing from one generation to the next. However, those dollars will not reach the next generation if we don't help our clients conserve their assets. The money will continue to go into the medical system where it will reward the owners of assisted living facilities, home health care agencies and nursing homes.

If you haven't added the knowledge of Medicaid planning to your practice, you can begin today by searching the Internet for information. A good place to start would be to enter a request for your state's Medicaid Eligibility Manual, where you can become familiar with the rules of how assets are counted, what assets are counted, what transfers of assets for less than fair market value are, etc., as well as what penalties are in place if someone has not planned properly. You can also seek out information from attorneys who practice elder law in your state. You will find hundreds of Web sites for attorneys in your state alone.

Then, you may want to check out some books at your local library that deal with the topic of Medicaid planning and eligibility. While this won't make you an expert in the subject, it can lead to a discussion of Medicaid planning with your client and their children, which will open the door for you to introduce them to an elder law attorney who can assist them. The really nice thing is that while you are helping these people, they may just need some of the products you have to assist them in the planning process.

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