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FAMILY FINANCE: Rules on renunciation and Medicaid

Published October 1, 2019

“While my father was in a nursing home receiving Medicaid, his sister died and left him money in her will, and to his children if he died before she did. I am his only child. My lawyer prepared a renunciation and had my father sign it. The lawyer said this was to facilitate the transfer of funds to me without Medicaid claiming it. My father passed away in 2006. Medicaid states that renunciation is not allowed by Medicaid patients, and they are going to court to claim the funds that are still in my aunt’s estate. After paying the lawyer $3,000, do I have any recourse? I’m 71 and my annual income is about $30,000.”

– AL, North Massapequa

If you told the lawyer your goal was to protect this money from Medicaid, you should ask him to refund his fee. He knows tax law, but he didn’t check the Medicaid rules.

Your father was legally entitled to renounce all or part of his inheritance within nine months of his sister’s death. The amount he renounced automatically passed to the next heir named in her will – you.

Tax law says when you disclaim an inheritance, it’s as if you never had the money. Unfortunately, Medicaid law says your father’s inheritance was a resource available to pay for his care, says Bernard A. Krooks, a Manhattan elder law attorney. By renouncing it, he transferred his assets to you.

That transfer made him ineligible for Medicaid nursing home benefits during a penalty period that’s determined by dividing the amount he transferred by the average monthly cost of a nursing home. “Let’s say he renounced a $100,000 inheritance, for example. If the average monthly cost of a nursing home on Long Island is $10,000, then for 10 months, he’s ineligible for Medicaid,” Krooks says.

Medicaid is entitled by law to recover benefits paid during that penalty period from the inheritance your father renounced. It’s a waste of legal fees for you to contest the agency’s claim, Krooks says.

It would have been better to have had your father accept his inheritance, he said. He could then have given half of it to you without endangering his ability to pay for the nursing home. Here’s how:

Dad inherits $100,000. He gives $50,000 to his son. Assuming a $10,000 monthly nursing home cost, the gift makes him ineligible for Medicaid for five months. Dad lends the remaining $50,000 to his son in exchange for a promissory note. The loan is to be repaid in over five months in $10,000 installments. Dad uses those payments to pay for his nursing home care during the five-month penalty period.

The term of the loan cannot exceed Dad’s life expectancy, and it must carry a fair interest rate. When done correctly, says Krooks, the loan has no impact on Dad’s Medicaid eligibility.

My stepfather’s will stated that I would get his house, but his sister could live there until her death. I looked up the property records, and the house is in her name. Will my stepfather’s will take precedence? I really do not understand why he would have put the house in her name when he included it in his will.

The deed takes precedence over the will. If your stepfather transferred it to his sister during his lifetime, she gets the house.

But the deed may have been transferred by mistake after his death. “I’ve seen that happen,” says Eric Kramer, an estate lawyer at Farrell Fritz in Uniondale. Check the date on which the deed was transferred to the sister. If it’s after your stepfather’s death, you should speak to the attorney handling the estate and have it corrected.

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