Most Common Medicaid Planning Mistakes
A Radio Interview of Attorney John R. Frazier by Attorney Joseph Pippen
A complete transcript of the program begins below:
All right, let’s go to attorney John Frazier who’s on the line now. Good morning, John.
Hey Joe. How are you doing today?
I’m doing good. John is our Medicaid VA, elder law attorney on the staff and he calls in with the tip of the week. What are we talking about this week John?
Today, I’m going to talk about the most common Medicaid planning mistakes and misconceptions that I see in my practice. Some of which I see virtually every week. I think the first one and one of the biggest problems is the failure to use a properly drafted durable power of attorney. I see this every week. I would say that most of the power of attorney documents that are taken off the internet do not have all of the required Medicaid planning provisions. So, it is generally a very bad idea to use an internet document for Medicaid planning when a power of attorney is concerned.
Another one of most common Medicaid planning mistakes that I see, or misconception, is the failure for clients to distinguish between gross monthly income and net monthly income. The state of Florida, Florida Department of Children and Families uses gross monthly income. Most people just receive their net monthly income. For example, on Social Security there’s a withholding of $148.50 for Medicare Part B. There could be deductions for Medicare Part D, the prescription drug program. I’ve even seen deductions for taxes. And also on pensions, we see deductions for taxes, life insurance, health insurance, and most clients don’t realize that the state of Florida does calculations based on monthly gross income. So for example, if the Medicaid recipient has $1,000 a month in social security, there’s a withholding of almost $150. Once Medicaid is approved, that premium deduction will stop, and the state of Florida will pay for the Medicare Part B premium. So, the person is going to get a larger social security check anyway.
This is particularly important because the state of Florida has an income cap or an income limit. And so let’s say that the net monthly income is $2,200 a month, the income cap is $2,382 a month. If you have several hundred dollars in deductions, the person may not realize that they’re actually above the income cap, because they’re relying on the net monthly income. So that’s a pretty common mistake that I see.
Another of the most common Medicaid planning mistakes that I see is incorrectly believing that a person on Medicaid is going to be treated differently, or treated less well, than a private pay resident. This has never happened in any of my cases, and there are federal and state laws, which protect against that. And I would say that the biggest thing is making sure that the family member is in a highly rated nursing facility. Almost all nursing facilities take Medicaid, even though not all facilities advertise that. So the key is to make sure that the person is placed in a good nursing facility.
The next mistake that I see is a pretty common mistake, which is relying on a non-attorney Medicaid planner or a social worker at the nursing facility for Medicaid planning advice. It’s a very bad idea. It also can be considered the unlicensed practice of law. Individuals who are not attorneys are not properly trained, regulated, they’re not insured so that’s a very serious mistake to rely on a non-attorney for your Medicaid planning legal needs.
Moving on, another of the most common Medicaid planning mistakes is not understanding that Medicaid benefits are also available for other types of settings, assisted living and living in the community. There are waiting lists for those programs, but if you’re working with an experienced elder law attorney, there are ways to effectively deal with those waiting lists.
The next misconception that I see is failure to pursue Medicaid planning, because of the incorrect belief that you have to be poor to obtain Medicaid benefits. That is not the case. All of my clients exceed either the asset limit or the income limit. And I’ve done over 3,000 of these cases successfully. Some of my clients have hundreds of thousands of dollars, and in some cases, even millions of dollars. I’ve been successful in all of those cases.
Continuing on with the most common Medicaid planning mistakes is the failure to understand the five-year lookback for Medicaid. It’s not uncommon for our office to be contacted by individuals who say that they just gave away $100,000 of their mother’s money, because they heard about the $2,000 asset limit. As a general rule, you’re not allowed to give assets away to obtain Medicaid, unless you’re transferring assets to a spouse. So what we generally have to do is to return that $100,000 and start over again. So that’s a very common misconception.
I think another misconception is a failure to understand that IRAs, 401ks 403Bs, 457 plans, retirement accounts can be made exempt with the proper planning. You just have to set up a monthly payout, according to a formula. I’ve had some situations where non-attorneys have advised a perspective Medicaid applicant to cash in their IRA, and pay the taxes on it. That’s incorrect and bad legal advice. You don’t have to do that. We can actually make the retirement accounts exempt.
The next one of the most common Medicaid planning mistakes is failure to understand that life insurance can be a countable asset. Many people don’t even think of this, but the rules are pretty strict. If the policy has cash value, really if it has a face amount of more than $2,500, all the cash value counts towards the $2,000 asset limits, and we have to deal with that. And that can be a big headache. So it’s very important to understand that.
Another misconception is the failure to understand that a funeral service or a cremation contract is a countable asset, unless it is made irrevocable. I think the general public does not understand that. Just by making it irrevocable, which means you can’t cash it in and get the money back, that will make it exempt.
I think another misconception is the failure to understand that there are other benefits out there. For example, the surviving spouse of a wartime veteran can receive up to a $1,244 a month in VA pension. So that’s very important if the person is in an assisted living facility.
The last one of the most common Medicaid planning mistakes I see is the failure, I think when you have a married couple to acknowledge that the spouse still living in the community may need Medicaid benefits for his or herself. Or also maybe not understanding that the estate planning documents for the community spouse need to be updated. So it’s very important for the spouse in the community to have a properly drafted power of attorney, as well as to take a look at their estate plan. Because if they were to pass away and everything goes back to the Medicaid recipient, you sort of have to start over again and do Medicaid planning again for the surviving Medicaid recipient.
So those are the basic misconceptions and mistakes that I see in my practice on a very regular basis.
All right, well, I have a couple of questions about some of those. So we had a case we talked about last week on the air, where there was a power of attorney document drawn from mother to daughter in another state. And when the mother got worse off, the daughter moved to Florida, and we had to analyze the power of attorney to make sure it was going to work in Florida. Now, I’m sure you’ve seen a lot of out-of-state power of attorneys drawn by other attorneys in other states, not really qualify what we need to do for the Medicaid planning. And then the person has to be declared incompetent because she can’t sign a power of attorney. Can you talk a little bit about that?
Yes. I think in this particular case, one of our concerns is whether or not the power of attorney is going to be sufficient to establish a qualified income trust, because the prospective Medicaid applicant has gross monthly income in excess of $2,382 a month. So in this particular case, the language is there, but DCF legal counsel will frequently require a letter from the drafting attorney or an attorney licensed in that state. It doesn’t necessarily have to be the drafting attorney, to verify that that power of attorney would be legally sufficient, under the laws of that state to establish a trust in that state. If you get that letter, DCF legal counsel will approve the power of attorney and the qualified income trust.
A bigger problem is if you’ve got a power of attorney drafted in another state that was taken off the internet. I’m only licensed to practice law in Florida and Georgia, and I don’t actively practice in Georgia. So I’m really only qualified to evaluate Florida legal documents. So if you’ve got a document off the internet, we would have to reach out to an attorney in that state, to sign off on that power of attorney. Most likely if it’s from the internet, we would just end up doing a new Florida power of attorney.
If the person is able to sign one.
If the person is able to sign one, and that’s always a potential consideration because a very high percentage of my clients – maybe 50% or more have memory – dementia and Alzheimer’s types of problems.
So John I’ve had a few cases where people come in and think they have to get divorced for. Let’s say we have a fairly wealthy spouse, who’s a community spouse who’s fine. And we have, they married an older person who now has got dementia and has to go in a nursing home. And someone told them along the way, well they looked at the assets of both of you, so the only solution you have is to get divorced to have the one qualify for Medicaid. So talk about the just say no strategy that very few people even know about that, I think.
Yeah. Yeah. I do see that question. It is not as common as the other ones that I mentioned, but that is incorrect, legal advice. Very, very bad legal advice if you’re advising married couples to get divorced simply for Medicaid purposes. If there are other reasons, certainly that’s understandable. Absolutely unnecessary to get divorced to obtain Medicaid here in Florida. With the spousal refusal strategy, what we do is we take the countable assets, as a general rule, move all of the countable assets, except for maybe about a little bit less than $2,000 into the community spouse’s name. And regardless of what the community spouse has on their side, the asset limit is $130,380 for the community spouse. But whether that person has a half a million, a million, two million, three million or more, if you use this spousal refusal strategy with a qualified attorney and everything is done properly, we can obtain Medicaid benefits for a Medicaid applicant, even if we’ve got hundreds of thousands – or potentially even over $3 million. There’s really no asset limit. So it’s absolutely unnecessary to get divorced to obtain Medicaid benefits.
All right, John, and if someone wants to contact you further to get more information or possibly set up a meeting to discuss all this. How do they reach you?
The office number is (727) 586-3306. Extension, 104. My cell phone is (727) 748-5374. And my email address is firstname.lastname@example.org.
All right, John, I hope you have a great Sunday. Thanks so much for calling in.
Okay. You too. Thank you very much.
All right. Thank you.
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