On October 6, 2011, Michele Donley signed an agreement admitting her grandmother, Virginia Carnes, to a nursing home. She signed a second agreement accepting personal liability for the cost of services provided. In the admissions agreement, and in two subsequent Medicaid applications, Ms. Donley denied that her grandmother had transferred any assets that might affect her grandmother's eligibility for Medicaid benefits.
Ms. Carnes, however, had gifted $50,000 to Ms. Donley in 2007, which Ms. Donley used as a down payment on a home. The gift was determined to be an "improper transfer" thereby resulting in a transfer penalty which made Ms. Carnes' ineligible for Medicaid benefits until February 2013. Ms. Donley was unable to keep up with payment for her grandmother's care due to the period of ineligibility, and the nursing home filed an eviction action and later obtained a judgment of $17,441.50 against Ms. Donley for unpaid services.
Ms. Donley filed for bankruptcy protection, and sought to have the debt discharged. The nursing home opposed the discharge of the judgment ostensibly on the grounds that Ms. Donley acted willfully or maliciously in causing the nursing home's loss. Section 526 of the Bankruptcy Code excepts from discharge debts that are willfully or fraudulently procured, or resulting from willful or malicious conduct.
Ms. Donley filed a motion for summary judgment, arguing that the nursing home lacked evidence to establish the elements of a claim, which she argued required a showing of fraud. The nursing home countered that considering Ms. Donley's multiple misrepresentations regarding her grandmother's transfer of assets, questions of fact existed about Ms. Donley's state of mind, making summary judgment inappropriate.
The United States Bankruptcy Court, N.D. Ohio, agreed with the nursing home and denied Ms. Donley's motion for summary judgment. The court determined that there existed a genuine question of fact whether Ms. Donley knew the $50,000 gift from her grandmother was an improper transfer at the time she signed the agreement and whether her misrepresentation was intentional or reckless.
There are several important lessons to take away from the Donley case. First, Medicaid planning is an important consideration any time that a person wants to make a gift to another. It is possible, even likely, that Ms. Donley's grandmother did not intend to make her granddaughter financially responsible for her long term care when she made the gift that permitted her granddaughter to purchase her home, but that is exactly the resulting legal and financial consequence.
Second, caregivers, family members, and/or fiduciaries should have nursing home admission agreements reviewed by counsel before signature. It is likely that an advising attorney would have explained the consequence of signing a personal guarantee, and absent such a guarantee, the nursing home's case would have been more difficult to prosecute.
Third, When applying for Medicaid, disclosure of all gifts must be made, regardless whether the parties intended the gifts as long-term care planning gifts, or whether the gifts might be overlooked. The State is quite proficient at discerning improper transfers, and financial transactions, regardless the value, leave a footprint.
Fourth, counsel should be retained by caregivers, family members, and/or fiduciaries prosecuting any application for Medicaid. Family members often reason that, since there is no value to the applicant's estate, the cost of counsel is unwarranted. Counsel should be retained for the purpose of advising the person assisting in preparing or otherwise prosecuting the application in order to protect his or her estate. It is unclear what options might have been available to Ms. Donley had counsel been fully apprised of the situation (non-institutional care, mortgage, reverse mortgage, establishing residence of the grandmother in daughter's home and qualifying her care as necessary to avoid nursing home care, as examples), but it is apparent that proceeding without regard for the ultimate possible consequence was an expensive, and possibly financially disastrous strategy.
Finally, nursing homes do evict residents. There is a common misconception that nursing homes will always bear the financial burden of an indigent resident. Nursing homes are not hospitals, many of which are required by federal law to provide care to indigents. A nursing home will protect itself legally and financially, as it should for its own financial health, and ultimately for the health and safety of its residents.
Nursing homes have excellent lawyers representing their interests. Likewise, caregivers and fiduciaries should have excellent lawyers representing their interests.
For a full text of the decision, click here.
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