It has now been more than six years since I have been a Certified Medicaid Planner™, and in that time I’ve helped many families save hundreds of thousands of dollars (or more) and still qualify for long term care assistance by following the Medicaid and VA Pension Benefit rules. However, even withan excellent Medicaid GamePlan™ in place and team members to help execute it, we have seen clients and their family members venture out on their own to make mistakes with fatal consequences. Here are four of the biggest ones:

1) Talking to the Medicaid Office

The Medicaid caseworker is not your friend, and they often try to get you to say something wrong. One case involved mom loaning her son a sum of money and then getting paid back over time, and this loan also would have made dad qualified for Medicaid for his long term care. The loan was well-structured, in writing, had a reasonable rate of interest, and was completely proper under the Medicaid rules… as long as the loan was for a legitimate reason. The application was submitted, and we were only waiting on a response.

Of course, the son ignored our instructions to only communicate through our offices, and he called the Medicaid caseworker directly to check on the status of the application. The caseworker and the son started “chatting,” and the caseworker eventually asked the son why his mom made the loan. The son responded “so dad could qualify for Medicaid.” Because the son had stated that the reason for the loan was just for dad to qualify for Medicaid, the application was denied. Had he called our team members instead of the caseworker, his father would have definitely qualified for Medicaid.

2) DIY Medicaid Application/Letting the Facility Apply

Qualifying for Medicaid and VA Pension Benefits often involve complex planning, and we typically set up a full “Toolbox” of trusts and other documents as part of the full Medicaid GamePlan™. However, even the best plan has to be brought across the finish line through a Medicaid application that accurately explains elements of the GamePlan™ that Medicaid may question by proactively providing explanations with the application for how the “chess moves” were legitimate. We can cut off any potential rejections and processing delays by doing everything possible to make the application acceptable to Medicaid on the first try.

Unfortunately, a client’s family member recently made the mistake of letting the long term care facility handle the application for their loved one, and they didn’t correctly explain what happened in the Medicaid GamePlan and gave them a copy of the wrong trust to send in. Of course, the application was rejected, and now we have to swim against the tide to fight a rejected application and show how the Medicaid GamePlan™ actually worked.

3) Contradicting the GamePlan™and Asking Forgiveness Later

Lifestyle choices are taken into consideration in a good Medicaid GamePlan™, but they have to be balanced against the often larger, long term goal of preserving assets. However, every now and then we get a client who ignores the strategy because they wanted to do something different… to disastrous effect. One such Medicaid GamePlan™ called for 1) putting the house entirely into the name of the spouse not needing care, 2) having the spouse needing care enter the facility when they medically needed to, 3) applying for and getting Medicaid, and then 4) selling the house so the spouse outside the facility could downsize into renting an apartment in a retirement community.

Unfortunately, even with repeated warnings not to sell the house until Medicaid was granted, the spouse “got tired of living in such a big house” and sold it without telling us before the Medicaid application for their spouse was even submitted. Because there was now an extra $450,000 in liquid assets not exempted in the form of a primary residence, Medicaid rejected the application. They were now forced to use most of that money on long term care for their spouse. If they had only held out for about three more months, they would have kept the full $450,000. Medicaid is definitely not an area where it is better to take action and ask forgiveness later because that forgiveness is not forthcoming.

4) Listening to Financial Advisors Outside of the Planning Team

Techniques for growing money are often completely useless when it comes to Medicaid planning, and, unfortunately, longtime family financial advisors will end up costing their clients hundreds of thousands of dollars by giving “inappropriate” guidance. Here are just a few of the most horrendous pieces of advice I have seen over the years that caused families to question and then ultimately abandon a solid Medicaid GamePlan™ which in turn cost the family hundreds of thousands of dollars paying for long term care when Medicaid would have otherwise kicked in:

  • “Don’t liquidate your bank CDs because you will forfeit the $3,000 in interest you have earned… wait 11 months until the CDs mature.” By following the banker’s advice, they saved the $3,000 in interest but ended up paying $9,500 a month out of pocket for care for those 11 months (meaning sacrificing $104,500 to save $3,000).
  • “Don’t liquidate the $20,000 IRA all at once! That will cause an extra $6,000 in income taxes in one year!” Of course, this also meant that the four months of back and forth with the accountant before they agreed with the plan actually cost the family about $8,800 in lost VA Pension Benefits, plus it could potentially delay Medicaid down the road if that benefit is needed.
  • “Don’t liquidate the mutual fund and purchase real estate! I can make much more money in the stock market for you!” By following the financial advisor’s advice, their loved one was not qualified for Medicaid AND the market had a downturn anyway, losing money. By the time the family got sick of the nursing home bills and having to liquidate stocks each month to pay those bills, the account had lost more than $100,000.

Banking, tax, and financial advice that may be wholly appropriate under normal conditions is often grossly misplaced when measured against costs of $5,000 to $12,000 a month or more for long term care.

Having a good Medicaid GamePlan™ in place means nothing if the plan is not followed. Unfortunately, we have seen far too many instances when deviating from the strategy has cost the family dearly in the form of lost benefits and money.