Bankruptcy Court Refuses to Discharge Granddaughter’s Debt to Nursing Home- Lessons for Caregivers

A U.S. bankruptcy court refused to discharge an Ohio woman's debt to a nursing home for the cost of her grandmother's care, finding there exist questions regarding whether the woman knew a gift she had received from her grandmother was an improper transfer of assets for Medicaid purposes and whether the woman intended to defraud the nursing home. In re Donley (Bankr. N.D. Ohio, No. 13-60758, April 17, 2014).

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.     

ODI Assists Families Locate Lost Life Insurance Policies

If you suspect a deceased loved one has a life insurance policy that you cannot locate, there is a service through the Ohio Department of Insurance (ODI) that can assist in identifying and locating the policy. ODI’s missing life policy search service is a comprehensive search service that assists Ohio residents, and the families of deceased Ohio residents, in locating lost insurance policies purchased in the state. The search identifies the existence of any life insurance policies or annuity contracts purchased in Ohio and issued on the life of, or owned by, a deceased person.

Since its implementation in September of 2009, the missing life policy search service has had 682 valid search requests, and have matched 442 polices with their rightful owners. Executors, legal representatives, or members of the deceased person’s immediate family may file a search request with the Department. To submit a request, visit the Missing Life Policy Search Service, page of ODI's website.  Go here to print out a request form.  Have the form notarized, attach a copy of the certified death certificate, and mail it to the Department.

The Department forwards the search requests and supporting documentation to all Ohio-licensed life insurance companies within 25 business days of submission. If an insurance company has information about an in-force individual insurance policy on the life of the deceased person or an individual annuity contract where the deceased person is an annuitant, the insurer is required to take action to administer the policy and/or contract according to its terms. If any money is to be paid to a beneficiary, the insurance company will contact the beneficiary directly. In this case, the company has 21 days to notify the consumer after contacting the Department.

Ohioans with questions about life insurance can call the Department's toll-free consumer hotline at 1-800-686-1526. A life insurance informational toolkit is also available on the Department's website. The toolkit provides tip sheets, publications, and links to other helpful web sites.

Using Your Social Security Benefits as an Interest-Free Loan

One little-known Social Security retirement benefits rule is the so-called “do-over rule.” Under this rule, an individual 62 years or older can start collecting benefits but stop the benefits within 12 months of the start, repay the benefits collected, and then still be eligible for their higher benefit amount when they collect at full retirement age or older.

What’s the advantage if the benefits must all be immediately repaid? The strategy can work as a short-term interest fee loan. It makes sense, for example, in cases where an individual has a need for income in the immediate short term, due to an emergency such as a sudden loss of employment, but they anticipate income, i.e. finding a new job or collecting a pension, within the year which would allow for full repayment. For many individuals in the their early 60s, a majority of their assets are tied up in retirement and investment accounts and withdrawals from these accounts would trigger hefty penalties. After “emergency” liquid funds run out, the do-over rule offers a short-term solution. In addition, by drawing on a Social Security “loan” instead of investments, you allow your investments to continue growing.

What if you are unable to pay back the benefits after the 12 months are up? You may still be able to suspend your benefits and increase your ultimate pay-out amount. For example, if you start collecting at 62 but no longer need the income at 66, you could suspend benefits until 70. Then, between the ages of 66 and 70, you would earn delayed retirement credits which would increase the ultimate benefit amount when you collect at age 70.

(Note that up until December 2010, it was possible for you to collect benefits and repay at any time. The law has since changed so that you are limited to a 12-month pay back period. You are also only allowed one “do-over.”)

For more information on how to collect, suspend and pay-back benefits, contact or visit your local Social Security district office. You can click here to find your local office.

Religious Music Aids the Dying

Listening to religious music helps seniors increase their life satisfaction and self-esteem, and decreases anxiety around death, according to new analysis published in the Journal of Gerontology.  Music also helped seniors appreciate a sense of control, according to researchers at Baylor University, University of Texas- San Antonio, Bowling Green State University and Duke University. The research suggests that long-term care residents may benefit from listening to religious music. Responses were collected among more than 1,000 adults, all over age 65, who were either practicing Christians, identified as Christian in their past, or who were unaffiliated with a specific faith.

"Given that religious music is available to most individuals — even those with health problems or physical limitations that might preclude participation in more formal aspects of religious life — it might be a valuable resource for promoting mental health later in the life course,” the authors concluded. Results appeared in The Journal of Gerontology.  

According to McNights Long-term Care News, a  2013 study, also published in the Journal of Gerontology, considering the use of religious songs in helping older African Americans cope with stressful life events, also found that songs evoking themes of thanksgiving, communication with God, and life after death improved the mental health of those studied.  These join a growing amount of research literature that associates various religious factors with positive mental and physical health, and even suggests that aspects of religious involvement may reduce mortality risk. 

Go here for an article discussing the broader Family and Psycho-Social Dimensions of Death and Dying in African Americans.

IRAs Can Affect Medicaid Eligibility

For many Medicaid applicants, individual retirement accounts (IRAs) are one of their biggest assets. If you do not plan properly, IRAs can count as an available asset and affect Medicaid eligibility.

Medicaid applicants can have only a small amount of assets in order to be eligible to receive benefits ($2,000 in most states). Certain assets -- i.e., a house, car, and burial plot -- are exempt from eligibility determinations. Whether your IRA counts as an exempt asset depends on whether it is in "payout status" or not.

At age 70½, individuals must begin taking required minimum distributions from their IRAs, which means the IRA is in payout status. You may also be able to choose to put your IRA in payout status as young as age 59 ½ if you elect to take regular, periodic distributions based on life expectancy tables. If an IRA is in payout status, depending on your state, it may not count as an available asset for the purposes of Medicaid eligibility, but the payments you receive will count as income. Medicaid recipients are allowed to keep a tiny amount of income for personal use and the rest will go to the nursing home.

If the IRA is not in payout status, the IRA is a non-exempt asset, which means the total amount in the IRA will probably be counted as an asset, affecting your Medicaid eligibility. In order to qualify for Medicaid, you will need to cash out your IRA and spend down the assets. Alternatively, you could transfer the money to your spouse or someone else, although there will likely be an income tax penalty for doing this.  

Note that the rules for a Roth IRA may be different. If you have a Roth IRA, depending on the rules in your state, it may not be exempt at all because Roth IRAs do not require minimum distributions.

The rules regarding IRAs and Medicaid are complicated and vary from state to state. You should talk to your attorney about your IRA to determine the best course of action for you. 

For more information on retirement planning, click here.

For more on Medicaid's rules, click here.