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protecting assets

By Nancy Burner, ESQ.

Nancy Burner, Esq.
Nancy Burner, Esq.

While the best elder law and estate plan is to have a valid health care proxy naming agents and a valid durable power of attorney naming an agent to make financial decisions, not everyone has done the proper planning.

It is not uncommon for an elderly person to fall ill, be hospitalized and then need nursing home care with no time to plan. If there are no advance directives in place, a guardianship proceeding under Article 81 of the Mental Hygiene Law may be required.

In an Article 81 proceeding the court will making a finding that a person is in need of a guardian and has the ability to consent or the court will determine that the person lacks capacity to understand and consent. In either case, a guardian will be appointed to protect the person and/or property of the individual. It is in this context that we often request that the court will allow the guardian the opportunity to formulate a Medicaid plan to protect assets, if possible.

The court utilizes “the doctrine of substituted judgment” when permitting the guardian to create a Medicaid plan. There must be clear and convincing evidence that a competent, reasonable person in the position of the incapacitated person would adopt such a plan.

The approved Medicaid plan could include an exempt transfer of the family home to a spouse, minor, blind or disabled child, an adult sibling who resides in the home for at least one year and has an “ownership” interests in the property or a caretaker child that has lived with the parent for two or more years and has cared for the parent.

Assets, other than the homestead, could be transferred to a spouse or a disabled child. The court has also approved Medicaid plans where there are transfers of assets that create periods of ineligibility provided there is a promissory note transaction or other assets, like individual retirement accounts to pay for any period of ineligibility.

Of course, this type of emergency planning is done all the time by competent individuals or their duly appointed agents. In this case, the court would be giving the guardian the same powers if adequate proof is submitted on the application to approve a Medicaid plan. Typically, the court would not allow guardians to this type of Medicaid planning, until a challenge was brought alleging that among other things, incapacitated persons were not afforded the same rights as people without disabilities.

In an important decision, the highest court in New York State, in the Matter of Shah, held that: “No agency of the government has any right to complain about the fact that middle class people confronted with desperate circumstances choose voluntarily to inflict poverty on themselves when it is the government itself which has established the rule that poverty is a prerequisite to the receipt of government assistance in the defraying of costs of ruinously expensive, but absolutely essential, medical treatment.” As a result of this case, the guardianship judges in New York State started to approve Medicaid planning by guardians. This has been an important case for individuals who have failed to plan in advance of their incapacity.

There are also instances where an individual is in a nursing facility that could cost anywhere from $10,000 to $18,500 per month and they still have assets in excess of the permitted amount but are unable to make the transfers. Under a New York State Department of Health administrative directive, the incapacitated person would be immediately eligible for Medicaid as the assets would be deemed unavailable. The person would get Medicaid without any review of their assets, even though they have assets well in excess of the Medicaid limits. This often occurs when an individual is in a nursing home and receiving care and there is no one to access his or her funds. If the nursing home makes an application for a guardian to be appointed, the nursing home can immediately apply for Medicaid as well. This is a useful and necessary tool for nursing homes that frequently suffer the economic effects of residents that cannot pay and due to incapacity cannot cooperate in making an application to the Department of Social Services for Medicaid reimbursement.

While this option is available, it is far better for individuals to be prepared and take the time to execute a power of attorney and a health care proxy. Guardianship cases are legal proceedings that are expensive and can become contentious between family members. In addition, the individual is at the mercy of the court to determine what their wishes would have been using the doctrine of substituted judgment. It is far better to be proactive and choose your own plan and the agents to implement it.

Nancy Burner, Esq. practices elder law and estate planning from her East Setauket office.