Unintended Consequences

A lawyer who is doing Medicaid planning for a client asks: “The Medicaid caseworker has requested to see my client funds account records.  Must I give her this information?  Is this a problem?”

This inquiry reveals one of the many pitfalls of Medicaid asset preservation planning.

Except in certain circumstances, lawyers who perform work for clients and collect legal fees in advance are required to hold the client funds in a special account, treating those amounts as assets of the client until earned by the lawyer.

The Medicaid rules count any and all assets belonging to the client as available resources when determining whether the client is eligible for Medical Assistance, or Medicaid benefits.  The rules state further that a single individual may keep no more than $2,500 in order to qualify for Medical Assistance for long term care in a nursing home in Maryland.

If the Medicaid planner seeks to apply for benefits on behalf of the client when the client has only $2,000 in a bank account, but the planner also holds $2,500 in a client funds account for such client, intending to bill against these client funds for services to be performed, then under the Medicaid rules, the client has $4,500 in available resources.

A single person in a nursing home who has resources of $4,500 would not be eligible for Medical Assistance.  To make matters worse, it typically takes a Medicaid caseworker about six months to fully process a Medicaid application, although once processed, eligibility may be granted retroactively back to the month the application was filed.  There is no telling how long it might take the caseworker to ask about the lawyer’s client funds account.

Indeed, such inquiry may come five or six months after the initial application is made.  If that were the case in the example above, then as long as the client funds account for the Medicaid applicant had more than $500 in it, Medicaid eligibility would not be granted.

In the example above, if the client funds account had more than $500 during the five months following the application, the client would not be eligible to receive Medical Assistance to pay his nursing home care.  And, because five months of private pay in a nursing home could cost as much as $40,000, an amount that dwarfs the client’s $2,000 bank account, it is clear that overlooking just one available resource could have catastrophic consequences.

For this reason, experienced elder law attorneys take care in structuring their fee arrangements so as to avoid this problem.

While the jury is still out on whether the lawyer who made the inquiry in the first paragraph will have a problem as she has made her inquiry to a number of experienced elder law attorneys to get their opinions, the practice of the Gatesman Law Office has always been to establish a Medicaid plan that avoids this problem.