Can I Use the Money I Was Given for Medicaid Planning Purposes by Ronald A. Fatoullah & Jeffrey P. Gorak

By Ronald A. Fatoullah, Esq. and Jeffrey P. Gorak, Esq.

{3:16 minutes to read}  Medicaid is a jointly funded, Federal-New York State program which offers broad medical services to individuals who are blind, aged (over 65), or disabled. Most people, however, tend to associate Medicaid with home health care aides (Community Medicaid) and nursing home care (Institutional Medicaid).

In New York, to financially qualify for Medicaid individuals can own no more than $15,150 in assets. If individuals have assets exceeding this amount, called the resource allowance, they must divest themselves of the excess, which ordinarily involves a transfer of the applicant’s assets to someone else. While some transfers are permitted by Medicaid without a penalty, including, for example, transfers to spouses and disabled children, most other transfers are not.   

For Institutional Medicaid there is a five-year look-back period whereby Medicaid reviews the applicant’s financial statements for the five-year period preceding the application. The purpose of this review is to identify any non-exempt transfers of assets, which, if any, will create a period of ineligibility. For example, for individuals living in New York City, every $12,319 they transfer will create a one-month period of ineligibility.

If applicants are unable to utilize exempt transfers, they can choose to either privately pay a nursing facility until such time as they fall below the resource allowance, or to engage in what has been commonly referred to as promissory-note planning. In the promissory-note plan, the applicant transfers a portion of his or her assets, roughly one-half, and the transfer is a gift. This gift creates a period of ineligibility. The remaining portion of the applicant’s assets are loaned to the same individual, and the funds are used to pay for the applicant’s nursing home care during the period of ineligibility caused by the gift. At the expiration of the penalty period, concurring with the repayment of the loan, the applicant becomes eligible for Medicaid.

A question that often arises in promissory-note planning is whether the gift portion really is a gift. In other words, can the gift be spent by the recipient? The simple answer is yes, but any experienced elder law attorney will advise against spending the gift, at least temporarily. This is because when the promissory-note plan is submitted to Medicaid along with the Medicaid application, it may take months to receive the plan’s approval. If, however, the plan needs to be recalculated because, for instance, the applicant forgot to identify a particular asset or forgot to recall a particular gift made in the past five years, a portion of the gifted asset may have to be returned to the applicant. If the gifted money is unavailable because it was spent, the applicant’s Medicaid eligibility may be placed in peril.

A promissory-note plan, when properly prepared, is an extremely useful way to preserve a portion of an applicant’s assets while qualifying for nursing home Medicaid. The plan, however, is also very complex. It is therefore recommended that applicants desiring to use a promissory-note plan in connection with nursing home Medicaid seek the services of an experienced elder law attorney.       

Ronald A. Fatoullah, Esq. is the principal of Ronald Fatoullah & Associates, a law firm that concentrates in elder law, estate planning, Medicaid planning, guardianships, estate administration, trusts, wills, and real estate. Jeffrey P. Gorak is an elder law attorney with the firm. The law firm can be reached at 718-261-1700, 516-466-4422, or toll-free at 1-877-ELDER-LAW or 1-877-ESTATES. Mr. Fatoullah is also a partner with Advice Period, a wealth management firm, and he can be reached at 424-256-7273.  

Ron FatoullahRonald A. Fatoullah, Esq.
Managing Attorney/Founder
1-877-ELDER-LAW • 1-877-ESTATES