WHOSE MONEY IS IT ANYWAY?
“My mother has a CD worth about $50,000 and a checking account with $22,000 in it. But the checking account is in my name, too, so that’s half mine, right?” The man says on the other side of my desk.
I plop my body back into my office chair and begin to explain to my latest client how Medicaid will assess the ownership of his mother’s assets. His misconception about joint ownership is something that I have heard before – several hundred times before, in fact.
Being an attorney means that I am privy to the thoughts of many people. People share with me – as I’m sure they do with other attorneys. And, after meeting thousands of people and hearing their thoughts, I think it’s pretty safe to say that people pretty much think the same – at least about the issues that I discuss with them.
In previous columns, I’ve discussed other elder care law misconceptions that people harbor. For instance, most people believe that they’re automatically ineligible for Medicaid benefits for thirty-six months. They’re not. With proper planning, the vast majority of people can qualify for Medicaid benefits sooner than thirty-six months.
Many believe that Medicare guarantees the payment of the first one hundred days of nursing home care, or some fractional part of the first one hundred days. It doesn’t. The one hundred days of Medicare coverage is a maximum amount of coverage that is available; it is in no way a guarantee that a Medicare recipient will receive one or one hundred of those days.
Seemingly, almost every person I meet believes that they can only gift $10,000 in any one year. That’s untrue. The $10,000 annual exclusion – now, the $11,000 annual exclusion – is simply the amount of money/assets that a person can gift in any one year to any one person without reducing their $1,000,000 lifetime exclusion against gift tax. If someone gifts more than $11,000 in any one year to any one person, the excess gift reduces their $1,000,000 life time exclusion dollar-for-dollar by the amount the gift exceeds $11,000.
Just as popular as these three misconceptions, however, is the misconception about the joint ownership of assets and Medicaid eligibility. People tend to believe that if they own an asset jointly with their child, then they have either transferred the entire asset to their child or transferred some fractional portion of the asset, typically half the asset.
For instance, if mom places her son’s name on her bank account or brokerage account, mom might think that she has transferred the account or half of the account to her son for purposes of Medicaid eligibility. Now, according to the belief, if mom were to need long-term care and were to apply for Medicaid benefits, she might think that, at least, half of her assets are “sheltered” from the costs of her care.
Sadly, her assets are not sheltered. The addition of the son’s name to one of mom’s assets only shelters the asset or a fractional portion of the asset if the addition of the son’s name restricts mom’s access to the asset.
What the heck does that mean? I’ll explain using some examples.
If mom adds her son’s name to a bank or brokerage account, she hasn’t restricted her access to any portion of the account. If mom wanted to, she could withdrawal all of the funds/assets from the account without requesting the permission of her son. Since mom can access the entire account, her access to the account has not been restricted in any way.
However, if mom adds her son’s name to the deed of her house, she has restricted her access to the house, because now, she cannot sell the house – or the entire house – unless the son joins in the sale. That, unlike the bank account example, is a restriction on the mother’s access to the equity value of the house.
What concerns me the most about misconceptions is that unlike a fact that a person simply doesn’t know, a misconception is a fact that a person doesn’t know but thinks he does. Misconceptions prevent people from seeking advice because the person thinks they know the answer, when they don’t.
Just this week, I met with a woman who thought her mother was ineligible for Medicaid for thirty-six months. For the past two years she had been paying for her mother’s care. Yet, even without planning, her mother was eligible for Medicaid benefits over a year earlier. That’s a $60,000 mistake, caused by a misconception.