New Potential Liability for Fiduciaries

Responding to the financial straits affecting nursing and assisted living facilities in New Hampshire, the legislature recently passed a new law, RSA 151-E:19.  The law gives nursing and assisted living facilities the right to sue fiduciaries (i.e., guardians, financial powers of attorney, trustees and representative payees.  “Representative payee” is a person or entity authorized by the Social Security Administration to handle the social security benefits received by an individual) who negligently fail to timely apply for Medicaid for a person residing in a nursing or assisted living facility who has no other means to pay for such care.  If found negligent by the court, fiduciaries may be personally liable for the resident’s cost of care at the Medicaid rate.  In addition to paying their own legal fees, they may have to pay the nursing or assisted living facility’s legal fees incurred in bringing the suit.

The new law also allows nursing and assisted living facilities the right to sue fiduciaries or quasi-fiduciaries who mistakenly use the resident’s income to pay prior creditors, rather than the nursing or assisted living facility.  In some case, after the fiduciary has filed for Medicaid, the resident may receive bills for prior medical expenses that finally trickled in from the insurance company or lingering utility bills. Trying to be conscientious, the fiduciary may innocently believe that prior creditors need to be paid before paying the nursing or assisted living facility’s current bills.  Under that scenario, the innocent fiduciary may be liable for the funds used to pay the prior creditors and legal fees incurred by the nursing or assisted living facility if it sues the fiduciary.  Quasi-fiduciaries for purposes of this rule include anyone who has access to a resident’s financial accounts, including a friend or neighbor who is assisting the resident with paying his or her bills.

The new law is effective now.  It applies to transfers made on or after July 2, 2013, and Medicaid applications that should have been filed on or after July 2, 2013.

Many fiduciaries are private individuals who are unaware of the limited time period within which to apply for Medicaid.  Even if the nursing or assisted living facility advises the fiduciary about this, often the fiduciary is handling multiple aspects of the resident’s life, from helping the resident transition from a hospital to a rehabilitation center and/or nursing home and managing the person’s financial affairs, all while trying to understand the interplay between Medicare, private insurance and Medicaid.  To say the least, fiduciaries are usually overwhelmed, particularly if they are working themselves and/or have families of their own.  In addition, the Medicaid application may look easy; however, the process of locating the necessary five years of financial records for the resident can be a daunting task, particularly if the resident did not keep detailed and organized records.  Sometimes, even if the fiduciary has done his or her due diligence in trying to locate all of the resident’s financial information, the fiduciary may discover additional assets after the Medicaid application has been submitted, but before it has been approved.  In that case, the new asset will disqualify the resident from Medicaid because the asset had not been spent down prior to filing the application.  Although the fiduciary may not be found negligent, the nursing or assisted living facility might still sue, forcing the fiduciary to prove that he or she was not negligent in not finding the asset sooner.  Alternatively, the nursing or assisted living facility may use this law to pressure the family member personally to pay toward the nursing or assisted living facility’s bill.

In addition to potential suits against fiduciaries, the new law gives nursing and assisted living facilities the right to sue individuals who received assets from a resident who applied for Medicaid but was denied because the asset transfer occurred within five years of applying for Medicaid.  This rule does not apply to exempt transfers, e.g., where the individual pays fair market value for the transferred asset, the caretaker child exception, and others.  However, it could apply in the case where a young grandparent helps a grandchild with his or her education and the grandparent has an unexpected stroke, requiring nursing home care within five years of the gift and needing to apply to Medicaid to pay for that care.  Or, it could apply where a parent helps a child pay legal fees for a divorce, then the parent unexpectedly requires nursing home care and needs to apply for Medicaid.  In those cases, the resident would be ineligible for Medicaid because the asset transfer was not exempt and thus the recipient technically falls under the auspice of the new law.  While the law was under consideration by the Legislature, representatives for the nursing and assisted living facilities indicated they will not pursue such cases at this time.  However, they may do so if they do not know all of the facts or do not believe the parties.  Further, nursing or assisted living facilities may use the law as leverage to pressure other family members to pay for the resident’s care in those cases.

While the intent of the new law is to target “wrongdoers,” Governor Hassan recognized that the law may affect innocent fiduciaries and other innocent persons.  Thus, she allowed the new legislation to become law but without her signature.  She did so given the commitment from the nursing and assisted living facilities, the New Hampshire Chapter of the National Academy of Elder Law Attorneys, Inc., and other stakeholders to work with the legislature next session to address these concerns by passing amendments to the new law.

Fiduciaries and others who assist family members, friends and/or neighbors with their financial affairs, and where Medicaid might be needed to pay for long-term care, are well advised to consult with elder law counsel to insure they (i) are handling the person’s affairs properly, (ii) are keeping detailed and complete records, (iii) become knowledgeable about the time period within which to file for Medicaid, and (iv) become aware of the rules concerning the permissible uses of a resident’s income once an applicant is eligible for or has been approved for Medicaid.  The estate planning and elder law attorneys at DTC are happy to assist fiduciaries and other individuals who feel they need advice concerning this new law.