Daughter who declared bankruptcy must repay $142,742

Money was transferred in a plan to get her mother qualified for Medicaid
2013-10-01T09:22:00Z 2014-02-04T09:15:50Z Daughter who declared bankruptcy must repay $142,742RICHARD HABIGER - SBJ CONTRIBUTOR The Southern
October 01, 2013 9:22 am  • 

An elderly woman who transferred funds to her daughter so that she could qualify for Medicaid cannot claim that she retained ownership of the funds when her daughter declared bankruptcy. In Re Woodworth (Bankr. E.D. Va., No. 11-11051-BFK, Feb. 6, 2013).

This case illustrates why do-it-yourself asset protection does not work, and that it should never be undertaken without the expert assistance of an elder law attorney who specializes in qualifying clients for governmental benefits to help pay for care in a nursing home.

In 2002, Dorothy Stutesman transferred $142,742 to her daughter, Holly Woodworth, so she would not have assets in her name if she ever needed Medicaid. In April 2010, Woodworth transferred the money to a trust designed to protect the assets from creditors. The entire corpus of the trust was used to purchase an annuity to benefit Woodworth. In February 2011, Woodworth filed for bankruptcy.

The bankruptcy trustee sought to void the trust, arguing it was a fraudulent transfer under bankruptcy code. Woodworth did not dispute that the transfer was fraudulent, but she argued that the property was never part of her estate because she was holding it in a constructive trust for her mother.

The U.S. Bankruptcy Court for the Eastern District of Virginia entered judgment for the bankruptcy trustee, holding that Woodworth clearly had complete ownership of the funds. According to the court, “Ms. Stutesman can’t have it both ways — she can’t part with title for purposes of Medicaid eligibility, and at the same time claim that she retained an equitable title to the asset. To allow this kind of secret reservation of equitable title would be to sanction Medicaid fraud.”

If an elder law attorney had been involved from the beginning in 2002, he would have asked Stutesman a lot of questions about her children, and, in particular, about the child chosen as custodian of the funds. By doing this, the attorney might have uncovered enough information for him to advice against making the transfer to Woodworth. Even if the attorney did not, an elder law attorney would have strongly advised Stutesman to not make an outright transfer to Woodworth.

For example, an elder law attorney would have counseled Stutesman that Woodworth might end up in a wide variety of future circumstances, including bankruptcy, which could jeopardize an unprotected transfer of the funds.

For example, an unprotected transfer to Woodworth could be jeopardized if she were to be sued for causing personal injuries in an auto accident and not have sufficient liability insurance to cover the total award to the injured person. Or, if Woodworth were to be sued for divorce, her ex-spouse might be awarded some or all of the funds by the divorce court.

In short, once Stutesman gave up ownership of her funds, the funds became subject to the vicissitudes of Woodworth’s life.

Because of an unprotected transfer to Woodworth, no matter how trustworthy or financially responsible she might have been in 2002, an experienced elder law attorney would have advised Stutesman to set up a special type of trust, one with built-in protections, into which to put the funds. Or, Stutesman might have been advised to purchase a Medicaid qualified annuity in 2002 instead of waiting until 2010, when it was too late to undo the mistakes made eight years earlier.

RICHARD HABIGER is author of the Illinois edition of “How to Protect Your Family’s Assets from Devastating Nursing Home Costs: Medicaid Secrets” and an elder law attorney who focuses on asset protection, Medicaid and VA benefits. He may be contacted at 618-549-4529 or info@HabigerElderLaw.com.

Copyright 2015 The Southern. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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