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Michigan Elder Law Today

Monday, June 20, 2011

Medicaid Part 10 - Some Common Questions

Some Common Questions

I’ve added my kids’ names to our bank account. Do they still count?

Yes. The entire amount is considered 100% available to the person applying for Medicaid unless you can prove some or all of the money was contributed by the other person who is on the account. This rule applies to cash assets such as:

  • Savings and checking accounts
  • Credit unit share and draft accounts
  • Certificates of deposit
  • U.S. Savings Bonds

Can’t I just Give My Assets Away?

Many people wonder, can’t I give my assets away? The answer is, maybe, but only if it’s done just right. The law has a severe result for people who simply give away their assets to create Medicaid eligibility (called divestment). It is not a civil or criminal penalty; the penalty is that Medicaid will not pay for your care for a period of time. For example, for every $6,816 (in 2011) given away during the five years prior to a Medicaid application creates a one month period of ineligibility.

So even though the federal Gift Tax laws allow you to give away up to $13,000 per year without gift tax consequences, a gift of that amount would result in a period of ineligibility of nearly two months for Medicaid purposes.  During the penalty period, the nursing home bill must be paid by the nursing home resident or their spouse, otherwise the nursing home can seek to evict the resident.  When the nursing home bill is not being paid due to a penalty period, the family may have to step in to pay it to avoid the eviction.

Also, these are your assets, so be careful. If you give them away, you truly lose all control and the legal protections afforded to owner's of assets, so outright gifts of assets should be avoided if you are planning ahead.  Transfers may make sense if someone is about to go to a nursing home or is already in one, but they have to be structured just so to avoid problems.

I’ve added my child as a joint owner on my mutual funds or real estate. Do they still count?

Designating someone else as a joint owner on real estate, mutual funds, or stocks can be very risky, but in some cases the now jointly owned asset may be considered unavailable for Medicaid purposes.  The asset would only be considered unavailable if 5 years or more have passed since establishing the joint ownership arrangement, if the asset can only be liquidated with all owners’ consent, and if one of the owners refuses to give their consent.  However, there can be some real problems with the use of joint ownership.

First, it is important to realize that designating someone other than your spouse as a joint owner on such assets is considered a divestment for Medicaid purposes.  So, for instance, if you have a mutual fund valued at $50,000 and you make your child a joint owner on the account, the Michigan Department of Human Services will consider you to have made a $50,000 divestment, resulting in a 7 month period of ineligibility for Medicaid.

There are other potential problems with making someone a joint owner on your assets.  One that is overlooked is once you make someone a joint owner on your asset, that person has all the rights of an owner.  What that means is, using our $50,000 mutual fund example, the new joint owner has the right to sell the mutual fund and take all the money.  Also, your asset is subject to all of the joint owner’s potential problems.  For instance, if they get divorced, sued, or have a bankruptcy, what you still consider your asset can be lost in their problem because they are a joint owner.

If you make someone a joint owner on an asset that has appreciated in value, there can be a larger income tax that is owed when the asset is eventually sold.  Finally, joint ownership trumps your estate plan.  For example, if your Last Will and Testament or Revocable Trust provides that your assets are to be divided evenly amongst your children, but you have made one of the children the joint owner on the $50,000 mutual fund, all of that mutual fund belongs to just that child and the others would receive nothing.  These same potential problems apply to making someone “joint” on your bank accounts.


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