UPDATE-Has anyone been asked to accept a loan for the purpose of protecting assets during Medicaid approval process?

[Navymom]

Anyone have experience with this?

My dad is in assisted living and my mom is in a regular nursing home. Their bill is over $15,000 per month right now and they will run out of money in the next 18-24 months.

We are in the process of getting my mother on Medicaid and their attorney has asked that I accept a "loan" from them and pay it back in installments. This is supposed to preserve some of their money in a legal way.

I know that any interest created would be taxed as income to me, anything else I should take into consideration? 

I have been hands off of their finances for a variety of reasons, and am VERY reluctant to do this. My sister has flat out refused. 

There is a history of mental health issues and manipulation. Already my dad is saying that he doesn't know anything about this loan and 'needs to find out more about it first'. I know that he most certainly does know, as he was at the last two meetings where this was proposed.

Thanks!

UPDATE-I ended up getting 50% of what I wanted.😐 I got my sister and I taken off of as financial POA. The FC (financial company) will be taking on all of that responsibility. 

I did end up agreeing to the loan, it is the "half a loaf" planning that was mentioned below. The only reason I agreed to it was because the lawyer said that if my dad ran out of money and Medicaid didn't think that he required assisted living, he would have to move.  In hindsight, I feel I was manipulated into that at the time, because he is 87 and requires help with showers and meds right now. I don't think Medicaid would determine he is able to live on his own. He is fortunate that he lives in one of the few AL facilities that accepted Medicaid, if and when the need arises.

I have mixed feelings, POA is taken care of and the Medicaid application (for my mom) is being handled my the lawyer. The loan is for only 3 months and then I will be done with it. I told my dad that I didn't want to hear another word about it, it was not what I wanted to do, but was what his attorney advised and is in HIS best interest.

 

 

 

 

Edited March 15 by Navymom

[Katy]

I don’t know either, but I would either refuse or pay a few hundred dollars to hire an attorney of my own to explain it to me. I would not just sign with that history. 

[Heartstrings]

I don’t understand why the interest would be treated as your income.   They loan you money, you pay it back to them with interest, isn’t the interest their income?  

[skimomma]

As someone who is in a similar situation, I would not be willing to do this.

[SKL]

At a minimum, I would look for a second legal opinion.

It is sad the way the elderly's assets can be drained.  I am not an expert on the law, but I know there are some ways to reduce the damage, but I thought these needed to be done years in advance of going on Medicaid.  And obviously the owners of the assets need to give informed consent.

If your folks are suspicious of your intentions, just say no.

 

[Faith-manor]

I would not do that. States are going after people who help hide parental assets and income from medicaid. This close to the application time, and it could very well be problematic. You want to keep your financials entirely separate of your parents and let the chips fall where they may.

[PeterPan]

1 hour ago, Navymom said:

I have been hands off of their finances for a variety of reasons,

So who is the POA? That is the person who should be advocating for them in these appts. It's easy for family to assume more competence in their loved ones than is completely warranted. I would assume your loved ones need assistance and talk with their POA to make sure the support/oversight is happening. If they are each other's POA and do not have another person, then I would work to get that updated.

That POA might want to go through their taxes with the accountant as well to make sure all their documentation has been submitted to get deductions for these expenses they're having. Only make decisions through first hand information from a competent POA and good advisors.

[skimomma]

55 minutes ago, SKL said:

 

It is sad the way the elderly's assets can be drained. 

 

I understand the sentiment but also don't understand why someone should not use their assets to cover their end-of-life care.  Why should tax payers be footing the bill for a nursing home if someone has the means to pay for it?  I say that as someone who is in the soup right now, being the POA for someone in spend down.  I would be the recipient of any assets left at the time of this person's death, but I still believe they should pay for their care until they are no longer able to.  I am super uncomfortable with a number of situations I know of first hand where family members are "taking care" of someone they have neither the desire or skill to so safely, all in the name of "preserving assets" that the elder will not live to benefit from (or even worse, to get the SSA check each month).  That is obviously not what the OP is referring to but it all ties together.  I would not be comfortable doing something legally-sketchy in order to try to preserve someone else's assets for myself.

(I realize that my opinions above do not work as well when there is still a living spouse or a person who may recover and need those assets.....)

[SKL]

15 minutes ago, skimomma said:

I understand the sentiment but also don't understand why someone should not use their assets to cover their end-of-life care.  Why should tax payers be footing the bill for a nursing home if someone has the means to pay for it?  I say that as someone who is in the soup right now, being the POA for someone in spend down.  I would be the recipient of any assets left at the time of this person's death, but I still believe they should pay for their care until they are no longer able to.  I am super uncomfortable with a number of situations I know of first hand where family members are "taking care" of someone they have neither the desire or skill to so safely, all in the name of "preserving assets" that the elder will not live to benefit from (or even worse, to get the SSA check each month).  That is obviously not what the OP is referring to but it all ties together.  I would not be comfortable doing something legally-sketchy in order to try to preserve someone else's assets for myself.

(I realize that my opinions above do not work as well when there is still a living spouse or a person who may recover and need those assets.....)

I feel like insurance should be structured so that the randomness of accidents and illnesses doesn't erase what an individual may have worked for over his/her entire lifetime.

Then again, people do need to think about this while they are still healthy.

That said ... we aren't necessarily talking about end-of-life.

[BusyMom5]

I would not do this either.  It may be legal- and I'm not sure that it actually is if anyone were to perform a look-back- but it's sketchy.  I'm sorry that both of your parents are in different expensive facilities, but sometimes this is what happens in the end.  Be thankful that they have enough to last a while and establish themselves into the care they need.  Hopefully Medicaid will pick up the tab once have spent down all their money.

I have had loved ones that were in this same situation and while it's hard to accept that they won't leave an inheritance- they also shouldn't leave a debt.  LTC is extremely expensive, but they do have enough assets to pay for it for now.  Hugs!

[Navymom]

Every fiber of my being is shouting NO. But, I am feeling pressured to do so and have been assured that this is common and no risk to me. 

Quote

 

 

Any tax I would owe would presumably be on the interest the 'loan' generated from being placed into some sort of bank account during its duration.

My sister, myself & a company that is being hired to handle the financial issues (bill paying mostly) are on the medical and financial POA. I requested that THEY take the loan, but it is considered a conflict of interest.

My sister and I did not want to be on the Financial POA, but the attorney felt we should be in case something happened to the company handling the finances.

We hired this company as neither my sister or myself are willing to become involved in our parents finances. Because of history, it could make us vulnerable legally, financially, and emotionally in ways that neither of us are willing to accept. Except, it seems I am still being pulled in.

A separate attorney is doing the Medicaid approval paperwork, but is working with the financial company.

I don't care if there is any money left at the end and most likely there won't be.

 

[KatieJ]

While I believe you can do this, I do believe there will be consequences as Medicare/Medicaid does a 5 year look back. I am surprised anyone is suggesting you do a loan. Please get another opinion..

 

[Faith-manor]

Navymom, your instincts are screaming at you that being involved is bad for you and your family. You didn't want financial POA and got goaded into it.

Do not agree to the loan, and rescind your POA. You didn't know want to be pulled in, and now they are trying to do that. NO, stoutly given, is a full sentence, and that is ALL the attorney, your parents, and anyone else needs to hear. Once you tell them you are no longer willing to be POA. Do whatever has to be done in your state to be removed from that, and then ignore communications from your dad and the attorney. If they can't draw you into communications, they can't manipulate you.

Put your mental health and your family's future ahead whatever this mess is they are trying to draw you into.

[Pawz4me]

I don't see how Medicaid wouldn't take a hard look at a loan like that? Wouldn't you have to show what the loan was for--like if it was used as a down payment for a house or a big remodeling project or something maybe it would pass muster. But if your parents "loan" you a hunk of money and you stick it in a CD I don't think that's going to pass review by Medicaid. But I have no actual experience with Medicaid, so take that FWIW.

[skimomma]

47 minutes ago, SKL said:

I feel like insurance should be structured so that the randomness of accidents and illnesses doesn't erase what an individual may have worked for over his/her entire lifetime.

Then again, people do need to think about this while they are still healthy.

That said ... we aren't necessarily talking about end-of-life.

I agree with you in non end-of-life situations, that insurance should be a way in protect one against financial ruin due to an accident or random illness.  Even in the case of end-of-life situations, one can take out *insurance* to cover assisted living or nursing home care while still preserving assets.  Medicaid coverage of a nursing home for end-of-life care is not insurance.  It is a last ditch safety net for those who have no way to pay for their care at that stage.  One that most people hope to never have to use.....which is why people save for retirement and may opt to purchase long term care insurance.  Once assets and/or insurance limits are exhausted, Medicaid steps in.  I just don't see why that should "step in" if a person can still pay for their own care.  It is especially distressing to me because it can be another way for the haves to win over the have nots.  Why should someone be allowed to hand down generational wealth while also drawing on tax-payer Medicaid?  That is why there are spend down rules.  I am not saying the system does not have problems and is especially difficult for people that are not at the end-of-life stage or having complications like a living spouse and/or other dependents.  But my basic opinion is that yes, you should indeed use up your assets for end-of-life care before asking tax payers to pay for it.

[ScoutTN]

Nope. Don’t do it.

[City Mouse]

The loan thing seems a little shaded to me. When we went through this  with my MIL, and then with my parents, there was talk of a trust being set up, but nothing about loans. My DH did do the trust thing for his mom. My parents both died before needing to apply for Medicaid.

[SKL]

1 hour ago, skimomma said:

But my basic opinion is that yes, you should indeed use up your assets for end-of-life care before asking tax payers to pay for it.

To be fair, those who have a lot of assets to lose have probably paid a significant share of those taxes over the years.  In fact, it seems kind of wrong to say that after paying 6+ figures in taxes over the years, they now cannot access tax-funded resources.

[Navymom]

This loan is separate and excluded from the 5 year look back period for Medicaid, at least according to their attorney.

There is a vehicle that they gave to my sister that is an issue with the 5 year look back, they will have to pay out of pocket for a penalty period equal to the value of the car before Medicaid will kick in. This is something that I also advised against at the time.

Like others have stated, I don't really see why they shouldn't use up their own money first. 

 

[Laura Corin]

32 minutes ago, SKL said:

To be fair, those who have a lot of assets to lose have probably paid a significant share of those taxes over the years.  In fact, it seems kind of wrong to say that after paying 6+ figures in taxes over the years, they now cannot access tax-funded resources.

I depends whether the scheme is an insurance policy for all or a tax-funded safety net.

[skimomma]

1 hour ago, SKL said:

To be fair, those who have a lot of assets to lose have probably paid a significant share of those taxes over the years.  In fact, it seems kind of wrong to say that after paying 6+ figures in taxes over the years, they now cannot access tax-funded resources.

The fact of the matter is that if most Americans needed to spend some of their end-of-life time in a facility of some sort and it was 100% covered by Medicaid, we'd go broke immediately.  That care can top 6 figures within 8 months.  And most Americans are not paying 6+ figures in taxes over the years.  

 

[elegantlion]

50 minutes ago, Navymom said:

This loan is separate and excluded from the 5 year look back period for Medicaid, at least according to their attorney.

There is a vehicle that they gave to my sister that is an issue with the 5 year look back, they will have to pay out of pocket for a penalty period equal to the value of the car before Medicaid will kick in. This is something that I also advised against at the time.

Like others have stated, I don't really see why they shouldn't use up their own money first. 

 

I would not trust that attorney. I would definitely want something in writing from Medicaid, if it's allowable at all. SO just had to go through the process of getting his mom on this, she's already in a nursing home. I don't know how a loan would be exempt from that. https://www.medicaidplanningassistance.org/medicaid-look-back-period/

 

[skimomma]

38 minutes ago, Laura Corin said:

I depends whether the scheme is an insurance policy for all or a tax-funded safety net.

We have Medicare and Medicaid.  Medicare is insurance that most, if not all, Americans over a certain age are eligible to use.  Medicare does cover nursing home facilities for a limited time (90 days, I believe) for people who have an unexpected accident or illness.  Medicaid is a safety net that only people who are out of significant assets and under a certain monthly income level are eligible to use.  You have to be pretty poor to qualify, hence the "spend down" situation in which one must use up their assets to become eligible.  It is not meant to be used by everyone nor is it funded in a way in which it could be.  People of means who want to protect their assets to hand down as generational wealth have the option of purchasing their own insurance to cover end-of-life care (as well as co-insurance to supplement Medicare) without depleting their assets.

[Laura Corin]

4 minutes ago, skimomma said:

We have Medicare and Medicaid.  Medicare is insurance that most, if not all, Americans over a certain age are eligible to use.  Medicare does cover nursing home facilities for a limited time (90 days, I believe) for people who have an unexpected accident or illness.  Medicaid is a safety net that only people who are out of significant assets and under a certain monthly income level are eligible to use.  You have to be pretty poor to qualify, hence the "spend down" situation in which one must use up their assets to become eligible.  It is not meant to be used by everyone nor is it funded in a way in which it could be.  People of means who want to protect their assets to hand down as generational wealth have the option of purchasing their own insurance to cover end-of-life care (as well as co-insurance to supplement Medicare) without depleting their assets.

We have something similar for end of life care. You have to spend down your assets before the state picks up the bill.

My mother bought a specialised annuity from the proceeds of selling her house. The annuity lump sum payment covered her private care fees for as long as she lived. So nothing was hidden from the authorities - she instead gambled on living long and breaking even, which she more than did.

[73349]

You don't want to do it. It sounds sketchy. Tell them you won't.

[Spryte]

I would want to speak to an attorney on my own about that first.

In my state, that would be a nope. Anything they “loaned” out would be found in the look back period, and would have to be repaid — as in, yes, your care will be covered *after* you’ve paid the amount “loaned” OOP. I personally would not go that route. Yes, this applies to gifts for down payments, etc, as well (in my state).

However, there are legitimate things that can be done with a relatively small amount to be protected. A prepaid funeral fund is a good one. FIL set up a fund with his dentist for dental work. A good social worker can tell you more. If only one spouse is going on Medicaid, there are protections for the other that can be significant. If it’s a larger amount, there are trusts and other options, but I’ve never heard that an under the table loan is a legitimate option (is this an under the table, not reported kind of loan? I don’t know, so don’t read into that!). 

It stinks, I’m sorry. My ILs required significant care, for which they used all of their LTC insurance and paid the rest of their copays, etc, OOP. They needed skilled nursing for more than a decade, and AL prior to that, and at up to $20K per month, paying for all that absolutely depleted their significant retirement savings and assets. MIL was devastated, but ultimately the gift they gave us was the care they received, and that we did not have to provide it. They both got on Medicaid about a year before they passed. For FIL, it was only 3 months or so. So they almost made it paying for their own care. But not quite. 

[DoraBora]

I haven't read all of the replies.  

There is something called a half-loaf strategy (I think) that is a last minute pitch to protect assets from Medicaid.  It was legal in many states recently, though no doubt, there's work going on to close this loop hole.  It's a way to protect half of a nest egg from Medicaid.

That said, just because something is legal doesn't mean it's right.  I agree with those who are warning you off this if you are uncomfortable with it.

I'm off to look for a law-firm article or explanation.

[PeterPan]

5 hours ago, Navymom said:

I am feeling pressured to do so and have been assured that this is common and no risk to me. 

I would like to cynically suggest you consider the *motivation* of this firm you've hired to engage in such schemes. The longer they drag this out, the more fees they get paid. What other motive do they have? Does this help YOU? Does it help your PARENTS? It sounds like it benefits the managerial company.

I agree with the others that you should just stand your ground. It's very hard to look experts in the eye and say they're wrong, but sometimes they are. If you hired them to decrease the drama, then tell them that. If they won't make your life better, change the firm to someone who will.

[BusyMom5]

Coming back to say that two of my loved ones have had to do this in the last few years.  No one hired an attorney. Theyworked with someone from the LTC facilities to do the paperwork. 

One had no assets besides money in an account.  They had enough to pay 3-6 months' worth of care, afterwards Medicaid has stepped in.  The other had a house and a few months worth of money for care.  Their house was sold quickly so the money was put into their account to be used.  One paid for funeral plans ahead of time, which I would suggest or you will have to pay that yourselves.  

[KungFuPanda]

I’d get a second legal opinion even if I had to pay for a consult. I can’t decide if this law firm is being sketchy to drag things out or being sketchy and planning to bail since your parents’ finances are dwindling. It seems like a weird ask. Even if it’s a legitimate legal strategy, wouldn’t you be on the hook for paying the interest?

[DoraBora]

1 hour ago, DoraBora said:

I haven't read all of the replies.  

There is something called a half-loaf strategy (I think) that is a last minute pitch to protect assets from Medicaid.  It was legal in many states recently, though no doubt, there's work going on to close this loop hole.  It's a way to protect half of a nest egg from Medicaid.

That said, just because something is legal doesn't mean it's right.  I agree with those who are warning you off this if you are uncomfortable with it.

I'm off to look for a law-firm article or explanation.

It's called a Gift and Loan strategy or Half a Loaf Planning.  The idea is to preserve half of the nest egg for the heirs.  It's legal, and though it doesn't seem particularly ethical to me, I don't that it's much different than planning farther ahead by hiring a lawyer to form a Medicaid Trust. 

I agree with @Spryte that covering the cost of your own care (as best you can) is a gift to your children.   At her present burn rate, my mom will run out of money in less than a year.

https://www.recordonline.com/story/news/2020/11/02/bonnie-kraham-gift-and-loan-strategy-can-protect-half-elders-assets/6101331002/

https://www.trustlaw.com/protecting-half-on-the-nursing-home-doorstep-the.html

[Pawz4me]

11 minutes ago, DoraBora said:

It's called a Gift and Loan strategy or Half a Loaf Planning.  The idea is to preserve half of the nest egg for the heirs.  It's legal, and though it doesn't seem particularly ethical to me, I don't that it's much different than planning farther ahead by hiring a lawyer to form a Medicaid Trust. 

I agree with @Spryte that covering the cost of your own care (as best you can) is a gift to your children.   At her present burn rate, my mom will run out of money in less than a year.

https://www.recordonline.com/story/news/2020/11/02/bonnie-kraham-gift-and-loan-strategy-can-protect-half-elders-assets/6101331002/

https://www.trustlaw.com/protecting-half-on-the-nursing-home-doorstep-the.html

Both of those links reference single people, not married couples. So I'm wondering how it would apply to the OP?

[DoraBora]

1 minute ago, Pawz4me said:

Both of those links reference single people, not married couples. So I'm wondering how it would apply to the OP?

I don't know.  It may not apply... sorry.

[Pawz4me]

5 minutes ago, DoraBora said:

I don't know.  It may not apply... sorry.

But it's great info, so don't be sorry!

[athena1277]

OP, I don’t know the ages of your kids, but if you have one going to college in the next few years taking that loan will also mess up what your kid can get in financial aid. 

[almondbutterandjelly]

21 hours ago, Navymom said:

Every fiber of my being is shouting NO. But, I am feeling pressured to do so and have been assured that this is common and no risk to me. 

Listen to your gut.  It's screaming at you for a reason.

[AnotherNewName]

I am leery of this plan for a variety of reasons, but most importantly I don't believe in the end that it will protect the money for the estate.  Note: I am not familiar with using a loan for this purpose, but it would seem this would be treated similarly to how Medicaid treats certain income producing annuities and other income producing assets. I *think* a legitimate loan would a considered an asset (an income producing one at that).  To meet the IRS criteria for this to be a loan and not a gift (and I *think* the Medicaid rule would be similar based on how the Medicaid look back treats gifts but that is speculation on my part), you would have to be paying a market interest rate.  That money would be treated as income for your parents and would be subject to being used to pay their expenses to offset what Medicaid is paying.  

Paying the money back via interest payments over X amount of time would diminish whatever would be left for the estate at the end, but again, *IF* Medicaid treats this loan like they would similar assets, Medicaid could claim the loan to offset what Medicaid has paid out in care.

And now that I type that out, the loophole might be that the loan wouldn't have a cash out option like an annuity so maybe Medicaid can't get it for that reason?

But I dunno...still feels sketchy to me.  I say follow your gut and say no.  If anyone tries to push you into a yes, please seek a second opinion from an attorney who specializes in estate law.  As someone mentioned above, Medicaid *will* take a hard look at this loan so be careful.

 

 

[AnotherNewName]

20 hours ago, DoraBora said:

I don't know.  It may not apply... sorry.

Actually, that was a really good link which explains this situation really well. It could work similarly with a couple in care. Medicaid laws are well outside my expertise and the explanation about the penalty clears up what I was missing on how this could work.

[TravelingChris]

On 3/12/2024 at 3:44 PM, skimomma said:

We have Medicare and Medicaid.  Medicare is insurance that most, if not all, Americans over a certain age are eligible to use.  Medicare does cover nursing home facilities for a limited time (90 days, I believe) for people who have an unexpected accident or illness.  Medicaid is a safety net that only people who are out of significant assets and under a certain monthly income level are eligible to use.  You have to be pretty poor to qualify, hence the "spend down" situation in which one must use up their assets to become eligible.  It is not meant to be used by everyone nor is it funded in a way in which it could be.  People of means who want to protect their assets to hand down as generational wealth have the option of purchasing their own insurance to cover end-of-life care (as well as co-insurance to supplement Medicare) without depleting their assets.

Not necessarily.  I know I have had zero ability to get reg life insurance let alone, long term care insurance.  Too disabled.  And I think dh wouldn't be eligible either.

[Laura Corin]

1 hour ago, TravelingChris said:

Not necessarily.  I know I have had zero ability to get reg life insurance let alone, long term care insurance.  Too disabled.  And I think dh wouldn't be eligible either.

The long term care insurance business has collapsed in the UK - it's barely available for sale any more. I was told that the lifestyle changes of the population as a whole in the past 30 years - diet, inactivity  - had been an  actuarial disaster for the companies who had issued policies. Now all you can get is an annuity at the point of entering a care home.