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Inheritance Can Disqualify Medicaid Recipient
Jan L. Warner & Jan Collins

Question (by e-mail): My father has been in a nursing home since a stroke three years ago left him unable to move, swallow, or talk, although he is mentally alert. My mother, now 71, did not work outside the home, and Dad worked in a factory. Because they always believed in paying their own way, against our advice Mom refused to see a lawyer and used up all of their savings for Dad's care. It was only when her account had less than $5,000 in it earlier this year that she let my brother and me help her get Dad on Medicaid. Mom used Dad's power of attorney to transfer their only other asset the home where we grew up, which isn't worth $50,000 to her name. Here's the problem: Dad just received an unexpected $20,000 inheritance from his only brother's estate. The Medicaid people say this money will make him ineligible for Medicaid, and that it will have to be used for his care. Can Mom transfer this amount to herself and avoid disqualification?

Answer: Unexpected inheritances can throw a wrench into the Medicaid planning process and cause eligibility problems.

First, since the inheritance is fresh money available for your father's food, shelter, and clothing, his receipt of the $20,000 counts as income to him in the month he received it and causes loss of his Medicaid eligibility for that month. Second, if retained in his name, these funds would be counted as a resource for subsequent months, thus causing Medicaid ineligibility until all the money is spent.

But since Medicaid rules allow spousal transfers, if your mother has a valid durable power of attorney containing appropriate gifting provisions, or your father is sufficiently alert to make a gift, the funds can be transferred to her. If the transfer to your mother is made before the end of the month when your father received the inheritance, he will lose eligibility only for the month during which he received the funds. This is because under Medicaid rules, if his resources are below the limit at any time during that month, he retains his eligibility for the entire month.

As a practical matter, however, assuming the gift to your mother is made, your Dad would not actually be ineligible for the month he received the money. Instead, Medicaid would send your mother an overpayment summary for that month, and she would reimburse them for that amount and retain the balance.

While your mother's and father's desire to "pay their way" is admirable, given her life expectancy and their limited resources, Medicaid planning is essential. Your family's situation shows the need for appropriate durable powers of attorney, family planning that diverts inheritances away from incapacitated individuals or into "special needs" trusts for them, and consultation with skilled elder law attorneys (www.naela.org).

Taking The NextStep: Middle-class, elderly Americans and retired Baby Boomers are taking the brunt of austerity programs now being practiced in Washington and many state capitals. The number of Americans over 65 is rising rapidly, and we now have a record-high life expectancy of 76.9 years. But half of all Americans have some type of chronic illness that accounts for more than three-quarters of our health care spending. The number of Americans without health coverage increased in 2001 and, not unexpectedly, the Medicaid enrollment rate doubled during this same period. After passing landmark estate tax legislation that benefits only 40,000 Americans each year, Washington is cutting Medicare provider rates to the bone. Social Security increased only 1.3%, and much of that was offset by the cost of Medicare Part B. Many seniors lost 30 percent of their worth in the stock market debacle. Yet, in both Washington and state capitals, Medicaid cuts for the needy are in the cross-hairs, while health insurance rates are rising. Contact your state and federal representatives to demand action if you think, as we do, that this situation is grossly unfair.



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