What if you buy Medicaid Annuity and Medicaid review discovers missed gifts?

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Example of assets and Medicaid annuity

1. Using $200,000 as the base 'assets'; split it into $100,000 to purchase a qualifying medicaid annuity and $100,00 into an irrevocable trust
2. Purchase $100,000 annuity and establish $100,000 trust (let's assume annuity runs for approx 14 months) June 1st, 2012
3. Apply for Medicaid July 1st, 2012
4. Medicaid performs review and claims $50,000 in gifts were made in previous 5 years and should be counted -- what exactly happens at this point?
Can the original $100,000 annuity be adjusted upwards to become a total of $125,000 with a total of a 16 month penalty
or can you purchase a 2nd $25,000 annuity and stick the rest into the irrevocable trust (or a 2nd trust) with a 2 month penalty?
or does Medicaid say, sorry, you can't do anything with that $50,000 except use it all to extend the original penalty period for
$50,000 / 8112 = 6 more months on top of the original 14 for a total of 20 months?
or is there something more that Medicaid does at that point?
5. As the result of step #4, when does the penalty period start and how long until Medicaid payments begin?
6. What actions does Medicaid take if my mother lives several years, uses up the annuity, begins receiving Medicaid payments and then dies after 1 year?

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Medicaid administered by the state. As such, each state's management is different. Because of that there never ever isn't 1 answer to anything Medicaid. You really need to speak with an certified elder care attorney who practices in the state where your mom lives. For the amount of $$ your talking about, 200K, you did see a certified elder care attorney with your mom before annuities, trusts, etc. were done, didn't you?

Medicaid is a federal/state needs based entitlement program (and very different than how Medicare & SS are done as they are federally structured entitlement programs).Because Medicaid is needs based what was done with assets in the 5 yr window prior to Medicaid application is central to qualifying and being eligible. Medicaid is designed as a safety-net for low income who can show both financial and medical necessity for long term care. The monthly asset ceiling and the nuances on evaluating the application and how assets are dealt with after death via the MERP program is set by each state within a federal guideline. Some states do this by state employees and other states have the state employee do the initial review and then if there is an issue it goes for a more sophisticated review which is usually contracted out but under the auspices of the state. HMS is the big company for doing this & they are very, very, very detail & results oriented as they do compliance, duplication, etc. for CMS - Centers for Medicare & Medicaid.

Because Medicaid is needs-based, doing a 5 yr look-back on the applicants assets is critical for the states to operate the program. If everyone was able to transfer all of their parents assets, empty out their accounts today, spend monthly retirement and SS on nonNH stuff and put them into a NH tomorrow and expect for the NH to be paid 100% by the state from day 1, the system couldn't afford it and there wouldn't be any NH for anyone to go into.

When you apply for Medicaid, you sign off for the state to access any and all financial on you & that your estate is subject to MERP if you go on Medicaid. Also the application and eligibility is reviewed annually.

When you spend assets inappropriately, the state can impose a transfer penalty.
Although your mom may now "qualify" for Medicaid, she will be "ineligible" for a period of time because of the transfer penalty. The penalty is different for each state as it is a formula dependent on what each state has for their rate of NH reimbursement. For example, in TX, transfer penalty is $ 142.92 (2011) a day.
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Agreed. To much at risk to chance getting a wrong answer. I imagine it also depends on other factors as well.... Get an attorney's opinion and go from there.
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Even if someone answers this very specific question, you should still go see an elder law attorney. This is a question for experts.
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