Medicaid Planning – Penalties Can Be Costly

Medicaid and nursing home law is full of pitfalls. There is a “look back period” and a “penalty period”, there are “divestments” and “spend downs”, and there are transfers that may be “for fair market value” or “for less than fair market value”.

The Michigan Court of Appeals recently ruled that the state correctly imposed a penalty period after a Medicaid applicant purchased shares of a family LLC.  Mackey v. Department of Human Services (Mich. Ct. App., No. 288966, Sept. 7, 2010).

In that case, in an attempt to qualify for Medicaid, the applicant (Elizabeth Marden), through her daughter (Betsy Mackey, who was power of attorney for her mother), paid $111,460 for investment units in the Marden Family LLC.

On September 7, 2010, the Michigan Court of Appeals ruled that the transfer was “for less than fair market value”, even though Ms. Marden received the LLC interest in exchange for her investment. The Court held that it was not an arm’s-length transaction made on the open market, explaining that Ms. Marden “invested a sizable sum in the Marden Family L.L.C., which was created solely for the purpose of circumventing Medicaid eligibility requirements and which ceded total control to [Ms. Marden’s] daughter (and fiduciary) for a fraction of the cost of [Ms. Marden’s] investment. Under the terms of the agreement, petitioner would only receive a marginal return on her unsecured investment after two years.  A willing buyer could not acquire such an asset on the open market, in an arm’s-length transaction. Therefore, the transaction was for less than fair market value and constituted a divestment of assets not subject to an exclusion.”

What does an eighteen month penalty cost?  At the average Michigan nursing home cost of about $6,600.00 per month, the cost of this penalty is $118,800.00.

I am not posting this to make you aware of problems purchasing LLC interests or similar assets.  I am posting this to let you know that asset protection planning, especially Medicaid and nursing home planning, is a complicated area, and that every transfer you make could result in a costly penalty.  So, make sure to sit down with an elder law attorney before transferring your assets.

Posted by:

Glenn Matecun | Michigan Elder Law Attorney

Explore posts in the same categories: Asset Protection, Medicaid Planning, Nursing Home Planning

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