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The Hardship Exception to the Medicaid Penalty Period: Rare But Possible
 
If you transfer assets within five years of applying for Medicaid, you will likely be subject to a period of ineligibility. There is an exception, however, if enforcing the penalty period would cause the applicant an "undue hardship." This exception is difficult to prove and rarely granted, but it may be possible in certain circumstances.
 
Under federal Medicaid law, the state Medicaid agency must determine whether a Medicaid applicant transferred any assets for less than fair market value within the past five years. If there are any transfers, the state imposes a penalty period, which is a period of time in which the applicant will be ineligible for Medicaid benefits.
 
A Medicaid applicant can fight the penalty period by arguing that enforcing the penalty period will cause the applicant an undue hardship. Federal law provides that an undue hardship exists if the penalty period would deprive the applicant of (1) medical care necessary to maintain the applicant's health or life or (2) food, clothing, shelter, or necessities of life. The burden is on the applicant to prove that hardship exists. A nursing home can also pursue a hardship waiver on behalf of a resident.
 
Proving an undue hardship is difficult because the applicant needs to show that he or she can't afford nursing home care during the penalty period and that without nursing home care, the applicant's health will decline. In addition, states are free to define "hardship" as they see fit and courts vary on how they enforce the hardship exception. For example, in Matter of Tarrytown Hall Care Ctr. v McGuire (N.Y. Sup. Ct., App. Div., 2nd Dept., No. 2849/12, April 16, 2014), a New York appeals court ruled that an undue hardship exception applied even though the nursing home did not attempt to evict the applicant because she was insolvent and unable to recover the assets, and because no other nursing home would accept her. On the other hand, in R.P. v. Division of Medical Assistance and Health Services (N.J. Super. Ct., A.D., No. A-6148-11T3, Oct. 22, 2013), a New Jersey appeals court ruled that a Medicaid applicant whose son had transferred the applicant's assets to himself was not entitled to an undue hardship exception because the applicant had not proven his health or life were endangered.
 
If you believe you are entitled to an undue hardship waiver, contact your attorney.
 
Should My Mother's Will Be Changed Now that My Brother Is in a Nursing Home?
 
We can’t answer your question for certain without seeing your mother's trust, but it sounds like the trust should be changed to have your brother's share of the assets stay in trust for his benefit. Receiving an inheritance may make your brother ineligible for Medicaid or other public benefits that help pay for his care. After your mother passes away, it will probably be too late to put the funds in a trust. I strongly recommend that your mother meet with the attorney who originally drew up her documents or with another estate or elder law planning attorney.
 
How Does Medicaid Treat Income?
The basic Medicaid rule for nursing home residents is that they must pay all of their income, minus certain deductions, to the nursing home. The deductions include a $60-a-month personal needs allowance (this amount may be somewhat higher or lower in your state), a deduction for any uncovered medical costs (including medical insurance premiums), and, in the case of a married applicant, an allowance for the spouse who continues to live at home if he or she needs income support. A deduction may also be allowed for a dependent child living at home.
 
In determining how a Medicaid applicant's income affects his or her eligibility for nursing home coverage, most states use what is known as the "medically needy" or "spend-down" approach.  These states allow the applicant to spend down their income on their care until they reach the state's income standard for eligibility, at which point Medicaid will begin covering their care.  In this way, those with incomes that exceed Medicaid's thresholds can still qualify if they have high medical expenses, assuming they meet Medicaid's other requirements.
 
But some states set a hard limit on the income permissible to qualify for Medicaid -- no spend-down is allowed.  In these states, known as "income cap" states, eligibility for Medicaid benefits is barred if the nursing home resident's income exceeds $2,199 a month (for 2015), unless the excess income above this amount is paid into a "(d)(4)(B)" or "Miller" trust. If you live in an income cap state and require more information on such trusts, consult an elder law specialist in your state.  The income cap states as of this writing are: Alabama, Alaska, Arizona, Arkansas, Colorado, Delaware, Florida, Georgia, Idaho, Iowa, Kentucky, Louisiana, Mississippi, Nevada, New Mexico, Oklahoma, Oregon, South Carolina, South Dakota, Tennessee, Texas and Wyoming.
 
For Medicaid applicants who are married, the income of the healthy spouse living in the community (the “community spouse”) is not counted in determining the Medicaid applicant's eligibility. Only income in the applicant's name is counted in determining his or her eligibility. Thus, even if the community spouse is still working and earning, say, $5,000 a month, she will not have to contribute to the cost of caring for her spouse in a nursing home if he is covered by Medicaid.
 
A Brief Overview of Dementia
The term "dementia" is thrown around a lot in discussions of elderly individuals, but what exactly does it mean? Dementia is a general term for memory loss that is severe enough to interfere with daily life. This general term encompasses many different diseases, of which Alzheimer's is only the most common. Following is a brief summary of the different types of dementia:
 
Alzheimer's disease. Alzheimer's disease accounts for 50 to 70 percent of all cases of dementia, according to the Alzheimer's Association. Alzheimer's is a partially hereditary disease that causes a loss of brain cells. It gets progressively worse over time and is fatal. There is no cure, but there are medications that can treat the symptoms and slow its progress.

Vascular dementia. Vascular dementia is the second most common form of dementia and is caused by poor circulation to the brain. It may occur after a major stroke or a series of minor strokes. The disease sometimes progresses in recognized steps. The symptoms of vascular dementia vary depending on which area of the brain is affected, but they can include memory loss, confusion, difficulty concentrating, and reduced ability to carry out daily activities. While there is no cure, treatment of high blood pressure and good diabetic control can slow the progress. In addition, drugs that are used to treat Alzheimer's disease can also be used to treat vascular dementia. Some individuals have both Alzheimer's disease and vascular dementia. This is called mixed dementia, and may have a greater impact on the brain than one form of dementia by itself.

Parkinson's disease. Parkinson's disease starts off causing physical symptoms, such as tremors, stiffness, difficulty walking, and speech problems. Dementia may develop late in the disease but not everyone with Parkinson's disease experiences dementia. There are no drugs to treat dementia caused by Parkinson's, but several medications can treat the physical symptoms of Parkinson's disease.

Lewy body dementia. Lewy body dementia is caused by deposits of protein on the brain cells. It has characteristics of both Alzheimer's disease and Parkinson's disease, such as memory loss and slowed movement, but it can also cause visual hallucinations and delusions. There is no cure, but some drugs used to treat Alzheimer's disease and Parkinson's disease may help with some of the symptoms.

Frontotemporal dementia. Frontotemporal dementia affects the front and side lobes of the brain and causes personality and behavior changes. The symptoms vary depending on which areas of the brain are affected but can include inappropriate actions, apathy, excessive happiness and excitement, lack of judgment, and difficulty in using and understanding language. There is no treatment or way to slow the progress of frontotemporal dementia.

Creutzfeldt-Jakob disease (CJD). Caused by a protein in the brain that takes on an abnormal shape, CJD is a rare disease that progresses quickly. A variant of CJD can be caused by eating cattle afflicted with "mad cow" disease. The symptoms of CJD include memory impairment, depression, and problems with movement. CJD is fatal and death can occur within a year of contracting the disease. There is no effective treatment.

Normal pressure hydrocephalus (NPH). NPH is a rare disease that occurs when fluid builds up in the brain. It causes mental decline as well as loss of bladder control and difficulty walking. It can be treated by surgically by inserting a tube (called a shunt) into the brain to drain the fluid.

Huntington's disease. Huntington's disease is an inherited brain disorder that is fatal. It starts with physical symptoms, such as jerky movements and problems with balance, and as it progresses can lead to trouble with memory and concentration. There are no treatments to stop or slow the disease, but some of the symptoms can be controlled by medication.

Wernicke-Korsakoff syndrome. Wernicke-Korsakoff syndrome is a brain disorder often caused by alcoholism. It leads to confusion, gaps in memory, and making up information, among other things. If caught early enough, it can be treated and the damage can be reversed.