Smart Money: Litigation best method to recover medical expenses

Bruce Williams is a national radio talk show host and syndicated columnist.

Dear Bruce: I am age 51, and my husband is 53. On Dec. 6, 1999, my husband, who was a self-employed carpenter, fell through a floor onto concrete. It left him with permanent damage over much of his body. He was off work for more than a year, and I quit work to care for him. He could not bathe or dress and used a wheelchair for months. He can now work, but we have depleted our savings account, sold stocks, sold some of his heavy equipment and took out a home-equity loan for $50,000.

We have filed a lawsuit because the accident was due to another company's negligence. That court appearance is scheduled for Oct. 28, 2002. We make monthly payments on our many medical bills, but we feel overwhelmed. How do we begin again to save for our future? - D.W., via e-mail

Dear D.W.: It sounds like you answered your own question. You've got your life back on track. Your husband was fortunate to have someone who would stay with him during a difficult period of his life. You're going to have to pick away at your debts.

If there is merit in your lawsuit, it may be that the award would provide enough money to retire all of your obligations. The problem is that litigation of this kind can stretch over a period of years. I do wish you well. You have been dealt a difficult hand, but you are playing it well.

Dear Bruce: My mother passed away three years ago. She was on Medicaid and in and out of a nursing home. After her death, we contacted a lawyer and her will was probated. He contacted the state to see if there were any claims from Medicaid. They told him they would look into it and get back to him. They were contacted three more times and then we closed the estate.

Fifteen minutes after the judge ruled the estate closed, the state showed up with a claim. They then filed the claim, and the judge reopened the estate. The entire estate, less then $30,000, was forfeited. We fought them, but we lost. What are your thoughts? - D.M., Cedar Falls, Iowa

Dear D.M.: The federal law requires that if monies are paid on behalf of a person through Medicaid, the estate that administered those funds must try to recover as much of them as possible. The morality of this is subject to a great deal of discussion. As these words are being written, the state of West Virginia is bringing a lawsuit against the federal government to reverse this practice.

Whether there should be monies going to heirs when public money has been spent on the decedent's care is an ongoing argument that we will never settle here. It would appear the judge acted correctly in complying with federal law. As I have indicated, however, there is a great deal of contention about this particular law.

Dear Bruce: My husband and I are 75 and 76 years old, respectively. Would it be a good idea to have our house put in trust in our children's names to protect us from the state in the event either one of us should be sent to a nursing home? We trust our children completely and know that they would not defraud us in any way.

We have talked to a lawyer friend about this, and his only suggestion was that we have the spouses of each child sign a release form stating that they would not try to collect in the event any one of them should divorce. Our home is our main asset. My husband is in favor of this proposal but I am concerned about losing control of my home. - Reader, via e-mail

Dear Reader: The first question to be resolved is do you wish to be put in the position where you are collecting Medicaid and then try to defraud the government from recapturing part of their payments on your behalf so that you can leave an estate to your children? Put coldly, that is what you are suggesting.

In every instance that I have been made aware of, a home could not be sold or foreclosed upon until both husband and wife are no longer alive. The appropriate agencies would then try to recapture some of their investment from you. Does that not seem reasonable? Why should the taxpayers pay for you to protect an inheritance?

That having been said, if you are going to proceed with this issue, your attorney gave you very good advice. If you put the home in your kids' names and there is a divorce, their spouses would have an interest. Should your offspring pass away, this could further complicate the ownership of your home. In the event that you insist on doing this, be certain to be guided by your attorney.

Dear Bruce: My companion and I are both senior citizens. Our home is worth between $60,000 and $70,000 and is paid for. We have enormous prescription costs. My children have mentioned reverse mortgages. Is that a possibility? - G.H., Wilmington, Del.

Dear G.H.: A possibility, perhaps, but the amount of money to be raised is not going to be significant. In effect, a reverse mortgage allows you to receive monthly payments against the equity in the house. There is generally a cutoff around 60 percent of the value. Both partners, married or otherwise, would have life rights on the home. The older the individuals, the more money the lender is willing to provide, since life expectancy is shorter. Apply at your local lender and ask about FHA-insured reverse mortgages.

Dear Bruce: I am in the process of removing my deceased husband's name from a home. Its value is now approximately $350,000 (we paid $90,000). I would like to add my son's name to the deed as joint tenants with right of survivorship. I would also like to add a document signed by his wife acknowledging no claim and a clause to the effect that I retain sole right of occupancy until my demise. What is the best way to title this property to reduce problems and tax ramifications? - S.M., Port Hueneme, Calif.

Dear S.M.: It is imperative that you consult with an attorney who will tell you how to accomplish these goals. I wonder, however, why you want to put this property in his name at all? If he were to get into difficulty with the IRS or in an automobile accident where he was liable, for example, this would put your home in jeopardy, and I see no reason for that.

Consider putting the home into a trust where your son is the beneficiary. In my opinion, transferring it to him now would be a mistake. While I understand the motivation to preserve your estate, it's my view your assets should remain in your name and whatever is left after your obligations are met will be distributed to your heirs.