Unintended Consequences: the pitfalls of "inter vivos" transfers

     Our law firm spends a lot of time working with individuals and married couples to pay for long term care expenses.  A typical plan involves organizing a client's assets to enable them to qualify for VA or Medicaid benefits that can pay long term care costs, allowing the client(s) to preserve a financial cushion to pay for the "extras" and protect a surviving spouse from poverty.

     Without planning, most clients do not have enough savings to pay for a long stay in the nursing home.  By default, everyone is on something known as the "Medicaid Spend Down" plan.  Once a married couple has spent their savings down to approximately $120,000 in Georgia, or $68,000 in South Carolina, Medicaid will supplement the institutionalized individual's income to pay the Nursing Home bills.  A single individual must spend her savings down to $2,000 in Georgia or South Carolina before Medicaid benefits kick in.  There are two big issues with the "Medicaid Spend Down."  First, married couples risk losing all of their savings to the sick spouse's nursing home bills, leaving the surviving spouse with limited financial security.  Second, individuals and surviving spouses are left without a financial cushion to pay for "extras," such as a private room.

     To get around the "Spend Down" plan, some may be tempted to just give all of their assets away to their children.  This is almost always a bad idea.  Life-time ("inter vivos") transfers expose assets to children's creditors and divorce settlements.  These transfers also result in a total loss of control over assets, meaning that life savings may not be available in the future if needed to supplement care.  Finally, this plan can leave a person in a huge dilemma if Nursing Home care is needed within 5 years of the transfer.  For example, imagine an individual gives away all of her assets to a child but needs Nursing home care in the same year.  If she applies for Medicaid, she will be assessed a penalty, which amounts to a period of time that Medicaid will not pay nursing home bills.  The penalty period increases depending on the value of what was transferred.  Under these circumstances, the individual would not qualify for Medicaid benefits and has no money to pay for nursing home care out of pocket.  This is the worst possible scenario for someone who needs nursing home care.

   Both Georgia and South Carolina have "filial support laws" that hold children accountable for the unpaid nursing home bills of impoverished parents.  Although these laws seems unfair on paper, it is likely that legislators enacted them as a response to the "inter vivos" transfer of assets to children as a means for obtaining Medicaid benefits.

     Due to the intricacies of the law and potentially devastating consequences of improper transfers, long term care planning and asset protection should be accomplished under the direction of an experienced elder law attorney who understands the interplay between the Medicaid and VA rules and regulations.