Michigan Medicaid Tips and Tricks

• These tips are not based on gaps or "loopholes" or hyper-literal reading of the code sections. They were meant by Congress to be used.
• Congress provided for parents with a disabled child in the fundamental Medicaid program.
• The Medicaid rules recognize a compensation agreement with a child caregiver.

They are There for a Reason

The tips and tricks are the result of deliberate policy decisions by Congress when it enacted the national Medicaid law. These tips are not based on gaps or "loopholes" or hyper-literal reading of the code sections. They were meant by Congress to be used.

The Community Spouse

The biggest tips and tricks are available to the community spouse. The community spouse can take “excess assets” and purchase a new home to live in. The applicant cannot. The spouse can purchase an annuity and have the investment return as income to him or her alone. The spouse can have property put in an asset protection trust for his or her future needs.

The Home in Trust

The home in trust trick benefits the community spouse. This tip works for couples who have less than $200,000 in savings. If the home is put in a trust it loses its exempt status. That’s bad. But, after entry into the nursing home it can be transferred out of the trust to the community spouse. It will be an exempt asset and the transfer will count toward the applicant’s spend down.
This strategy is available when a spouse is going in the nursing home and a couple has less than the maximum countable assets.

The Adult Disabled Child

Congress provided for parents with a disabled child in the fundamental Medicaid program. The applicant can transfer any and all assets to a disabled child and immediately apply for Medicaid. There is no penalty in the transfer so it can be done at any time. Of course, the funds will most often need to be in trust for the child since he may not be able to manage them or he might lose his benefits due to excess assets. Many programs for the disabled have the same asset requirements as Medicaid. However those assets will not render the child ineligible if the parent sets up and transfers the assets into a “d4A trust.”

The Two Year Live In Caregiver

It happens that a child will move into the home of a parent to provide round the clock care. The Medicaid rules allow the applicant to transfer the homestead to the caregiver child. The rules require that the caregiver lived in the homestead for at least two years immediately before the admission to long term care and provided care that would otherwise have required long term care as documented by a physician's statement. The two year period must be immediately before the nursing home entry. A stay in an assisted living facility will break the continuous period.

Questions: How is the transfer treated under the tax code? Is it gift or compensation? What if mom has more than one child? What if she and dad meant the home to be the inheritance of all the children? If so, how much more should the caregiver receive for the two years around the clock care? Should the parent’s Will be updated and how much should siblings be involved?

Mom Moves In

Sometimes the parent moves into the home of a child to receive care. The parent may pay the child, or any other provider of services, the market value of such services. The most comparable type of provider is a residential assisted living facility. The monthly charge runs from $2,500 to more than double for advanced dementia care. In just three years the value of the services can be worth more than $200,000.

Issues and questions abound. How is “fair market value” proven? Who pays for necessary improvements? The payments received are in part rental income and part personal service income. How are these reported on the annual tax return? Should the funds be shared with siblings after death of the parent? What if they helped out during her lifetime?

Mom Purchases a Life Estate

Sometimes when parents move into a child’s home the parent sells their own home. In that case the parent can purchase a life estate in the home of the child. The life estate disappears when the parent dies and the child is the sole owner of the home. The purchase value of the life estate decreases with age. For example at age 86 the value is 33%. A life estate merely purchases “floor space.” It does not pay for upkeep and maintenance, nor does it pay for the needed services such as cleaning, meal preparation or personal assistance.

A number of issues arise with this strategy. It has to be cleared with the mortgage company. The house may have to be improved to make all rooms accessible for the parent, including the bathroom. These can be very expensive. How much can she invest to improve the home? Who should pay for them? The parent or all owners equally? How much will the Medicaid office agree to? After she dies, how much is split with siblings?

In lieu of a life estate the parent may purchase a joint ownership interest. The recent changes to Medicaid, by the Deficit Reduction Act of 2005, addressed the issue of life estates. It did not not address joint ownership and hence the treatment of jointly owned property is in question.

The Personal Service Agreement

In the preceding examples we have seen that the value of the child’s services may be recognized. Under Michigan law such services are rendered without charge unless there is an agreement to the contrary. The Medicaid rules recognize a compensation agreement, but under questionable restraints. The child may be paid fair market value for commercially valuable services. These include anything over and above rent. It may cover services such as cooking and cleaning or transport to doctor visits and advocating with medical providers. The contracted services may be for financial management including bill paying and investments.

Points to keep in mind: Medicaid views such agreements with disfavor. A lawyer is required to ensure that the agreement meets the latest iteration of Medicaid policy. Currently the policy requires a doctor's letter saying the services are necessary to prevent nursing home entry! Payment for the services is taxable income for the child. It must be determined whether the child would be considered an employee or independent contractor. The child must keep a good records of services provided. The parties may agree to a flat fee per month, but the fair market value be accurately determined less the compensation be rejected by Medicaid as divestment. In brief: have an elder law attorney draw up the contract.