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April 26, 2025 by bob mason 27 Comments

The Medicaid transfer penalty is the most common issue we deal with when we submit an application for Medicaid nursing home benefits.

Question: Do you know someone who MIGHT have to consider a nursing home placement and a Medicaid application within the next 5 years?

Next Question: Is that person able to swing the $11,000 monthly bill?

If you answered “Yes” and “No” please do yourself a favor and read on.

I won’t waste your time going back over the Medicaid application issue because I have written about it elsewhere. You can read that here.

What I want to do here is emphasize a couple of extremely important Medicaid matters and give you a few pointers.

The Medicaid Transfer Penalty

In every other client meeting I have someone asks about “that five year look back rule.” What they are asking about is the general Medicaid nursing home rule that “sanctions” certain asset transfers. DSS “looks back” five years and adds up all free gift-type transfers. They then divide by $10,317 (which is supposed to be the average per bed Medicaid reimbursement rate in North Carolina) to calculate the sanction.

If Grandma transferred $103,170 to Francine four years ago and applies for Medicaid this month there could be a 10-month sanction. That is the amount of time Medicaid will refuse to pay the nursing home. No, Medicaid doesn’t take the money back; it simply will not pay the nursing home. It’s your problem.

There are a few exceptions: Transfers between spouses, transfers to a disabled child, modest and recurring donations (think of church), or other transfers made with absolutely no thought of qualifying for Medicaid (good luck, the burden of proving that is on you).

The transfer rule can bite in other unexpected ways. Read on.

Madeleine and Sneaky Medicaid Transfers

Madeline asked for our help qualifying her mother (Agnes) for Medicaid after Agnes’s admission to the nursing home. We pursued a number of strategies and got her mother currently qualified for Medicaid. The problems came up after we submitted the application.

As part of the application, we stated Agnes had made no sanctionable transfers within the past five years (after Madeleine assured us that was the case).

A few days after the submission, DSS told us they wanted to see FIVE years of bank statements. Madeleine wasn’t happy, but we had warned her.

Ten days later we submitted the six inch high stack of statements.

Three days later DSS asked us to explain a series of withdrawals over the years. Nearly every month the bank statement showed withdrawals of $200 to $500 “CASH.” They totaled around $30,000.

No, no, Madeleine!

I asked Madeleine what they were. She said, “Why, they were to me. I reimbursed myself for mileage and other expenses like groceries I bought for Mom. Is that a problem? They weren’t gifts.”

My answer? “Madeleine, it’s a problem if we can’t begin to substantiate what they reimbursed you for. Did you keep detailed records?”

Her response was something like “not-really-but-sorta.” We were looking at close to a 3-month transfer of assets penalty.  What that means is Medicaid will not pay the nursing home for three months once they have determined that Agnes is otherwise qualified for Medicaid (but for the transfers).

Fortunately, after much painstaking work, records reconstruction, and affidavits we were able to lower the penalty to less than a month.

But it wasn’t easy.

What could have been done

There isn’t a clear-cut answer other than: Be careful.

Here is what I suggest, depending upon your level of paranoia, dedication, and attention to detail.

Consider a simple “Reimbursement Agreement” in which Mom agrees to reimburse you for documented out-of-pocket expenses. Shortly after the end of every month, give her a statement with copies of receipts attached. Have her write YOU a check for that exact amount. PLEASE file the statement in your “Reimbursement Folder.” OK, you might think, the “Reimbursement Agreement” is a bit over-the-top. While I don’t think so, at least implement the system of “statements with receipts attached.”

Give the bank a copy of Mom’s power of attorney and ask that you be an authorized signer on her account. Then pay for Mom’s expenses with her account – and PLEASE do not write checks to “CASH.”

Dad Pays Pamela for Personal Care

When Pamela came to see me about “finally” having to put Dad in the nursing home she explained that Dad had been frail for years. Until 6 months ago he needed help around the house with basic chores, shopping, cooking, and the like. Six months ago, Dad took a turn for the worse and his physician said at that time that he probably belonged in a nursing home. Pamela couldn’t bring herself to do it. Until now.

Pamela also said she’d been paying herself about $2,200 a month the past 6 months or so for taking care of Dad a good bit of the day (not unreasonable since she quit her job). She’d also been paying “some other ladies cash under the table” (the IRS would take issue with that).

The Medicaid Transfer Penalty Problem

Problems? You bet! In fact, would I actually be writing about this if it wasn’t a problem?

Federal law (which NC is obligated to follow) simply requires that payments made for services rendered must be a fair market exchange. Period.

The NC Adult Medicaid Manual, however, attempts to pose stricter standards. In order for payment for “personal care services” to be a nonsanctionable transfer, the payments must be:

·       Pursuant to a written contract.

·       Must pertain to future services only (in other words you can’t go back and “paper up” a transaction after the fact).

·       Pursuant to a physician’s written statement that says the services are “necessary to prevent entry . . . to a nursing facility or intermediate care facility for the mentally retarded.”

Payments for Care Services Must Be Handled Correctly

Literally read, this would sanction payments made to a home health agency or non-related home health worker providing services needed to keep the applicant safe, or entertained, or whatever. If this was the case, the NC Association of Home & Hospice Care would be outside the Department of Health & Human Services building in Raleigh with pitchforks and torches.

I think this is overzealous manual writing from several years ago that wasn’t carefully thought through.

The concept is this: Dad could spend thousands of dollars buying a case of mink-lined wading boots if that is what “floats his boat.”

Payments to Family Members

The next section of the manual says that any transfer to a family member for services that the person provided for free in the past, must be pursuant to a written agreement entered into on or before the person renders the services.

Theoretically, Medicaid could sanction Granddad for paying his grandson to mow his yard. I think that is nonsense, but it certainly could be applied to a daughter providing personal care services.

The American Council on Aging maintains a useful website that also describes this problem in a general fashion and not state specific.

The Medicaid Transfer Penalty Solution

My Bottom Line: Even for a non-related homecare provider, get a written agreement before the services are rendered, and then honor it. Do this especially if the provider is a relative. Have a physician paper it up with an order before the provider renders the services. After all, a physician wants to help, and one could argue that services meant to keep Mom from falling are “necessary to prevent the entry” into a nursing home.

Finally, not that Medicaid cares, but the IRS certainly does. If you’re paying someone “under the table” STOP IT. There are many inexpensive payroll services out there.

Back to Pamela. Can I help her? It is going to be tough. We might be able to get “the other ladies” Toast: What you'll be after a Medicaid transfer penaltycovered, but I don’t believe we’ll have any luck with her. A descriptive photo appears to the right. Fill in the blank: “Pamela is ____________.”

Medicaid Transfer Penalty Takeaway

This is frightfully confusing stuff. Penalties can be horrific (multiply $11,000 by the number of months messed up). In many cases you can avoid later penalties, but it must be structured correctly under the tutelage of someone who knows what they’re doing.

Yes, you might have to pay some attorney fees, but in the long run that could be the best “bang for the buck” – certainly better than DIY (which can, in the end, be very expensive).

 

Note to Readers: This is an extensive rewrite of an earlier article.

Filed Under: Featured, Medicaid, Nursing Homes, Reader Favorites, Uncategorized Tagged With: Medicaid penalties, NC Medicaid nursing home, transfers of assets

March 23, 2025 by bob mason Leave a Comment

Based on multiple true events.

It’s maddening! Chelsea is stuck! Her father executed a power of attorney prepared by a local elder law attorney in 2020 (OK, it was me). The POA has all the necessary bells and whistles to enable Chelsea, his only child, to take care of any business matters that might come up after a possible incapacity.

After the death of his wife Ethel, Norman moved from Silver Pond to be closer to his daughter Chelsea in North Carolina (she and her husband Bill had moved from California some years ago).

Recently he had a serious stroke. Chelsea immediately stepped in to help because Norman named her as his agent under his power of attorney. Just a week before his stroke he told Chelsea he was afraid he would lose everything he had if he “ever got sick.”

The POA Problem

Dad has all of his investments and a modest IRA at Big Bank & Trust.  There’s only one problem.

Stern woman

Uh . . . NO

“We can’t use your power of attorney because bank policy requires that you use our form POA which has been pre-approved by Legal,” declares the banking rep with the assured authority of a TSA screener looking for contraband.

“But Dad has had a major stroke! We aren’t even sure how much he understands anything.” Chelsea just can’t believe this.

The banking rep must realize she was a bit harsh. With a comforting hand on Chelsea’s shoulder she assures her that she “can always bring a guardianship proceeding.” In fact, the banking rep helpfully offers the name of a local attorney to handle the guardianship.

The Other Attorney

Chelsea visited the attorney recommended by the bank. The attorney, a nice enough young man a year out of law school, explains the guardianship process and tells Chelsea that as guardian she’ll have all the authority she needs to pay all of Norman’s bills and expenses.

Chelsea was startled. “But what about transferring his assets to a trust? Or to me? Dad always said he was afraid of losing everything in case he went to a nursing home?”

“Sorry,” explained the nice enough young attorney, “but you’ll need court approval for that . . . and depending on what county you’re in, good luck with that!”

Despair . . . and Then POA Help

Man consoling woman

Why don’t you go see that first attorney?

That evening Bill suggested that Chelsea return to that elder law attorney Norman had seen in 2020.

Chelsea appeared in my office and told me the sad tale of hers and her father’s situation (which you just read about).

I must admit, I wondered to myself why she hadn’t come to see me in the first place. I explained that North Carolina law is on her side. Read on to find out why.

If the Power of Attorney is Good, the Banks Must Honor It

Up until almost twenty years ago the refusal of banks and other financial institutions to honor otherwise valid powers of attorney was becoming a real problem. As with Chelsea and her father, it wasn’t always possible for the principal (Dad) to simply execute a new power.

Further, an institution’s form power may have contained provisions that the customer would rather not have in a power of attorney.

Finally, institutional legal departments (oftentimes hundreds of miles away in other states) were taking too long to review North Carolina powers of attorney.

The Uniform Power of Attorney Act (a model act that states can use to pattern their own statutes) came to the rescue. North Carolina’s current power of attorney statutes are based on this act.

Pardon the statutory citations . . . we do have some geek readers.

NCGS § 32C-1-120(b)(1) says a bank or other financial institution has seven business days to notify the agent under the POA (Chelsea) whether they intend to honor the power. As part of that process, the bank may require the agent to execute an affidavit. In the affidavit the agent swears that the power has not been revoked and that there are no conditions that would otherwise render the power invalid. Alternatively, the bank may ask for a legal opinion from the person’s attorney on any matter of law the bank is uncertain of.

Unless the bank is aware of some fact that would render the power invalid, it better honor the power of attorney and allow the agent to conduct business according to its terms. Being wrong has consequences.

Under NCGS § 32C-1-120(b)(3) a person cannot require a different form POA if the one presented appears to be valid. Bad, bank, bad!

If a bank refuses to honor a power of attorney, the agent may initiate a special proceeding before the clerk of the superior court to render a decision as to the validity of the power of attorney.  NCGS § 32C-120(e). The validity of the POA will be the only issue on the table.

If the power of attorney is found to be valid under North Carolina law, the institution is liable for the costs and attorney’s fees incurred in bringing the proceeding.  Of course, if the agent was fibbing a bit and the power wasn’t valid because it had been revoked, for example, the agent would be on the hook.

Bottom Line: POA Problem Fixed

A few phone calls to the bank legal department, with a discussion of North Carolina law, quickly straightened the problem out. I have threatened the procedure on several occasions and have never had to follow through with a special proceeding. The financial institutions don’t want the hassle.

 

Filed Under: General, Powers of Attorney, Reader Favorites Tagged With: powers of attorney

March 1, 2025 by bob mason Leave a Comment

The CTA is ON HOLD! Sort of.

Eye roll emojiThursday evening FinCEN announced its intention not to enforce the pending March 21 reporting deadline.

As I wrote just over a week ago, the Financial Crimes Enforcement Network (“FinCEN”) issued a new March 21 reporting deadline.

In the Thursday evening announcement FinCEN wrote that “Today, FinCEN announced that it will not issue any fines or penalties or take any other enforcement actions against any companies based on any failure to file or update beneficial ownership information (BOI) reports pursuant to the Corporate Transparency Act by the current deadlines. No fines or penalties will be issued, and no enforcement actions will be taken, until a forthcoming interim final rule becomes effective and the new relevant due dates in the interim final rule have passed.”

I will keep you posted when any “interim final rule” is issued.

Remember: This is the SAME government that has nuclear weapons.

Filed Under: Corporate Transparency Act, Reader Favorites Tagged With: Corporate Transparency Act, CTA

February 19, 2025 by bob mason Leave a Comment

The Corporate Transparency Act/CTA is a GO!The Corporate Transparency Act is BACK! The CTA is ON!

Yesterday, a Texas federal district court lifted the last remaining stay on enforcement of the Corporate Transparency Act (“CTA”).

Within the past few hours, the Financial Crimes Enforcement Network (“FinCEN”) issued new deadlines.

Because of this, affected small corporate entities have until March 21, 2025, to file the necessary information with FinCEN.

If you ignore this and you are an affected LLC, S corporation, or C corporation (most small businesses are) and you do not report information regarding the entity and the “beneficial owners” you will be subject to fines of up to $591 a day and potential federal felony prosecution come March 22.

For more background on the CTA read this. Please take this seriously!

What to do about CTA Compliance

My recommendation: Ask your accountant, attorney, or financial advisor if they can help (the answer will likely be “no”). At Mason Law, PC, we made the decision that we could not efficiently offer reporting services. Therefore, I have been advising people to use Perfect Form, LLC. Mason Law, PC has used them. The pricing is quite reasonable. The data entry portal is very user-friendly. And, no, I don’t have any connection with them. Perfect Form, LLC.

My CTA Editorial

Congress enacted the CTA over a presidential veto on December 11, 2020. Drafters buried the CTA deeply in the huge National Defense Authorization Act of 2021. Supporters say that it will be a tool for policing money laundering, terrorist financing, and other nefarious financial conduct. It will also bring the US in line with other European-style enforcement measures.

However, we aren’t Europe. The CTA will force over 32 million small businesses, the vast majority of whom are law-abiding, to divulge information and keep it updated. I believe in cracking down on money laundering and such, but is this overkill?

Alabama Senator Tommy Tuberville re-introduced the Repealing Big Brother Overreach Act to repeal the CTA (it was too late in the last Congress to advance). North Carolina senators Tillis and Budd are co-sponsors. Ohio Representative Warren Davidson re-introduced the bill in the House, with North Carolina’s Edwards, Foxx, Hudson, Rouzer, and Murphy co-sponsoring. President Trump might be amenable to signing the repeal (after all, he was the president who vetoed it the first time around).

Filed Under: Corporate Transparency Act, Reader Favorites, Uncategorized Tagged With: Corporate Transparency Act

February 9, 2025 by bob mason 6 Comments

A "Power" of Attorney

Does your power of attorney have all the muscle that it needs? A flabby, wimpy power of attorney can be dangerous because it may lull you into a false sense of security and leave you susceptible to getting smacked when you thought you were protected.

Or is your power of attorney a wolf in sheep’s clothing . . . waiting to pounce?A Wold in Sheep's Clothing

Often, one of the first documents I ask a new client to show me is a power of attorney. Then I perform what must seem like a strange ritual as I spend 30 seconds feverishly flipping through pages and scanning the document. At that point I either smile and nod or frown and shake my head. I have been looking for specific powers; for muscle.

In another post I discussed the basics of powers of attorney . . . what they are, the different types, and why they are so important. If you are the least bit uncertain, go back and review that post. Then come back here!

Is Your Fiduciary Faithful – Are His Bona Fides In Order?

Under state law, the person making the power of attorney or POA (the principal) and the person authorized to act (the agent or the attorney in fact – they mean the same thing) are said to be in a fiduciary relationship. The word “fiduciary” is based on the Latin “fide” or “faith.” As in semper fidelis or Fidelity Bank or bona fide.

Both statute and common law (common law is law that is generally agreed upon by all and sort of “just out there”) govern fiduciary conduct. A fiduciary is subject to a number of rules that are essentially legal applications of practical ideas of diligence, loyalty and fair dealing. In the context of POAs, however, those rules pose some important considerations.

Perhaps primary among those rules is the duty to conserve the principal’s assets for the benefit of the principal and to avoid commingling the principal’s assets with the agent’s assets . . . or, for that matter, to avoid self-dealing (keep your hands out of the cookie jar!).

Those rules are a good “default setting” because they protect the principal from carelessly giving too much power to an unsuitable agent. On the other hand, those rules prohibit gifting.

The Gift That Keeps On Giving

Gifting can be an important authority. As I tell my clients (and wrote in a recent post), “by ‘gifting’ we aren’t talking about birthdays and Christmas, we’re talking about the ability to freely transfer assets out of the name of the principal.” The ability to undertake a series of carefully planned “gifts” can be essential to a sound estate planning or asset preservation strategy.

A North Carolina statute specifically prohibits gifting under a power of attorney if the document is silent as to gifting. If you enjoy looking up such things, look at N.C.G.S. § 32C-2-201(a)(1)a.

In other words, a short power of attorney that says “I give my agent full power and authority to do anything and everything I could do for myself” does not authorize gifting if that topic is not specifically addressed.

And that, Dear Reader, is one of the first things I am looking for when I scan a power of attorney and I know the engagement is likely to involve various asset preservation strategies.

Gifting Powers . . . But Not Really

Another problem I often encounter is the North Carolina statutory short form power of attorney. That is a one or two page form. After a general paragraph that appoints a person “to act for me with respect to the following subjects as defined in the North Carolina Uniform Power of Attorney Act, Chapter 32C of the General Statutes” there follows a series of powers for the principal to initial in order to confer the power. The latest version has 13 different powers. Gifting is NOT among those powers.

There follows a section named “(OPTIONAL).” Eight specific powers have blanks that must be initialed to give your agent that power. No initial, no power. The first power is; “(____) Make a gift, subject to the limitations provided in G.S. 32C-2-217.” That statute says that if the gifting power has been initialed, gifts to any one individual may nevertheless NOT exceed the federal gift tax exclusion ($19,000 in 2025).

The next section of the form, again labelled “(OPTIONAL),” requires yet another initial if you want your agent to be able to make gifts to herself. The agent could be a spouse or a child, but if this is not initialed, NO GIFT to that person.

These are dangerous forms because they lull people into a false sense of security. When the family shows up in my conference room after Dad has entered a nursing home and they are concerned about Medicaid qualification and asset protection, most techniques we employ involve moving assets around. Think: Transferring a valuable piece of real property into the community spouse’s (the one not in the nursing home) name.  With the (stupid) short form power, you might be completely hamstrung. I’ll describe this more below.

The principal, of course, is free to alter the common law or statutory law principles that apply to fiduciaries when she has her POA prepared. That is the key to a well-drafted and thoughtful power of attorney.

Problems With Gifting in a Power of Attorney

Many people are understandably nervous about granting gifting authority to an agent, but some limits on the agent can be put in place. For example, an agent may be given unlimited authority to make gifts to a select group of family members as long as the agent secures the written permission of certain other individuals.

No, no!

No, no!

Many POAs (even those drafted by many attorneys who don’t practice in the elder law area) attempt to control an agent’s ability to gift by saying something like “my agent may make gifts in an amount not to exceed the federal annual gift tax exclusion.” As described above, be careful of this. That language was inserted as an easy way to put some sort of “reasonable” restriction on gifting ability. The federal annual gift tax exclusion currently is $19,000 to as many individuals as the person making gifts wishes to favor. In a POA, however, limiting the ability of an agent to make gifts to that amount can render the gifting authority nearly useless if there are substantial assets that need to be conveyed. For example, a $19,000 limit on gifts can make conveying a residence or large sum of money difficult, if not impossible.

Other Powers To Think Of

In addition to gifting powers, there are a number of other powers that may require specific attention in a well-drafted POA.

  • Real Property

Real property (land and things on the land) law tends to be intricate and the law varies greatly from state to state. Often there are many surprises (many not pleasant) in the law that could restrict the ability of an agent to transfer the principal’s interests in real property.

With that in mind, specifically defining in a POA what an agent may or may not do with real property might be wise.

  • Retirement Assets

Everything that could be said with respect to real property applies to retirement assets . . . except for the fact that most retirement plans (IRAs, 401(k) Plans, pensions) are controlled by federal law. A good POA will describe what an agent may or may not do with respect to retirement assets.

  • Establishing and Dealing With Trusts

Most states have statutes that pertain to whether an agent may establish a trust on behalf of a principal . . . and most of those statutes require the POA to specifically describe what an agent may accomplish on behalf of the principal with respect to trusts if the agent is to have any authority at all.

  • The authority should address both revocable trusts and irrevocable trusts.

Keep in mind that establishing a trust and using the principal’s assets might also be an indirect gift. For example, a trust may provide that the principal will receive income for life, and upon the death of the principal the trust will be distributed to other individuals. In that case, trust authorization language should be used together with gift authorization language.

As with gifting, the agent’s authority to establish and fund trusts can be tied to some external authority (perhaps the approval of another individual).

So . . .

Pull out your power of attorney. Is it up to the task of protecting you? Or do you have a wimp on your hands?

Questions?  Leave a comment below and I’ll respond.

Updated February 2025.

Filed Under: Banking, General, Medicaid, Powers of Attorney, Reader Favorites Tagged With: durable power of attorney, financial power of attorney, general power of attorney, POA, powers of attorney

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