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Settlement Proceeds

by Ira M. Leff, Esq.

April 13, 2010

What do you do after you resolve a law suit in favor of a nursing home Medicaid recipient (A/R)? If the A/R is under 65, you might want to establish a Special Needs Trust for his benefit. See MEDICAID MANUAL § 2346. But what if A/R is older than 65?

I am currently working with two personal injury attorneys to help such A/Rs preserve much of the settlement proceeds.

In the first case, the A/R has been on Medicaid for about 3 years. In the process of doing a full work-up of the case, I discovered that A/R owns a home currently worth about $50,000. If she keeps it until she dies, she will lose all of it to Estate Recovery.

A/R is about to receive $100,000 in settlement proceeds. I recommended that she give half of the settlement to her children and loan the remainder to them. The loan payments will allow her to afford the nursing home during the penalty period which results from the gift. See MEDICAID MANUAL § 2313.

The children will use their gifts to purchase the home from A/R at fair market value, which is currently very low. A/R will then give them half of the house proceeds and loan them the other half. By use of the half-loaf approach, A/R is able to keep her homeplace in the family and to preserve about $25,000 of the injury settlement.

In the second case, A/R is about to receive $95,000. In this case, A/R is going to use the money to pay back her children for funds advanced to her over the last few years. She should be able to protect substantially all of the proceeds since she will not be making transfers, but rather paying debts.

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