MEDICAID AND JOINT ACCOUNTS:
IT’S EASY TO BE FOOLED
Ten years ago, shortly after Dad died, Mom added Son’s and Daughter’s names to all of her bank accounts – checking, savings, money market and CDs. She wanted them to be able to help her take care of her business, and when she died, she wanted her estate to be split evenly between them.
Now Mom has just been admitted to a nursing home with advanced Alzheimer’s disease, and Son and Daughter want to do what they can to protect as much of Mom’s life savings as possible from having to be spent down to pay for her care. They do a little “internet research,” which reveals the “five-year look-back period” during which asset transfers can delay eligibility for Medicaid, but figure there’s no problem, since their names have been on Mom’s accounts for ten years.
So they go to the banks where Mom has her accounts. Son and Daughter each withdraw “their thirds” or the money in the checking, savings and money market accounts. They cash in the CDs, and also split that money three ways, each taking a one-third share and leaving the other one-third for Mom.
They buy a pre-paid funeral for Mom and some things she needs in the nursing home, then they use her remaining money to pay for her care until she is below the Medicaid asset limit, at which point she applies for Medicaid. They fully expect that her application will be approved.
However, that isn’t what happens. The caseworker sees the large withdrawals of funds from the accounts and the cashing in and division of the proceeds from the CDs, and assesses a lengthy transfer penalty during which Mom will continued to be required to pay out-of-pocket for her care.
“How can that possibly be?!?” Son and Daughter ask, somewhat incredulously. “Our names had been on Mom’s accounts for ten years, and Mom not only didn’t transfer the money to us, she didn’t even know we did it! And if it was a problem, why didn’t the banks stop us? They fully cooperated!”
Unfortunately, Son and Daughter were unfamiliar with the Medicaid rules governing joint accounts.
The first of those rules is that any money in any sort of joint bank or other financial account is presumed to belong entirely to the Medicaid applicant, unless or to any extent that the other joint account-holder can prove that he or she contributed more money into the account than he or she withdrew. For example, if Mom, Son and Daughter had each contributed $10,000 toward purchase of a $30,000 CD, then Son and Daughter would each be entitled to 1/3 of the proceeds of the redemption of the CD. But if Mom’s money purchased the CD, it’s her CD, regardless of Son’s and Daughter’s names being on the CD, and regardless of how long they have been there.
The second rule is that, consistent with the first one, is that a transfer does not occur as to a joint account when other names are added to the account, but rather not until later when funds are withdrawn. In Mom’s case, the transfers did not occur ten years ago, but rather not until after she entered the nursing home, easily within the five-year look-back period and thus definitely subject to the transfer penalty.
The third of the rules is that it does not take the direct participation of the Medicaid applicant for a transfer to occur. Any action, by anyone, whether in a fiduciary or individual capacity, which transfers ownership of an applicant’s assets to anyone else for less than fair market value is subject to the transfer penalty provisions.
Finally, the fact that the banks did not object does not evidence any sort of wrongdoing on their part. Different laws can interact with a situation at different times in different ways. It’s not against the law for a liquor store to sell alcoholic beverages to a person of legal age, but drunk driving is against the law. As a matter of banking law, there is no problem with allowing joint account-holders to withdraw money from joint accounts. But as a matter of Medicaid law, it is problematic when the joint account-holder who put the money into the account applies for Medicaid within five years after another joint account-holder withdraws it.
As usual, there is an important moral to this story. The Medicaid eligibility laws and regulations are complex and often run contrary to people’s basic intuition and their “general understanding,” even when that understanding is informed by some “internet research.” It doesn’t matter whether mistakes are innocent or even well-intentioned; they can still cause profound negative consequences. There is only one way to go about protecting assets from Medicaid spend-down without unwittingly causing problems – with guidance and direction from an experienced elder-law attorney who has an intimate working knowledge of the Medicaid laws and regulations.