In 1994, the Pennsylvania Superior Court ruled that an indigent mother could sue her adult son to pay her overdue nursing-home bills. The case, Savoy v. Savoy, may not have been the first of its kind, but it lit a fuse. Ever since, filial-support litigation has been spreading across the nation. And financial advisors who oversee their clients’ long-term-care planning had better take notice.

“In Pennsylvania it’s become a trend,” says Katherine C. Pearson, a professor at Pennsylvania State University’s Dickinson School of Law in Carlisle, Pa. “But I don’t know of any state where this is not an issue.”

The issue is not always—in fact, not usually—an intra-family feud. Often it’s a nursing home or assisted-living facility or even a publicly funded long-term-care agency that goes after children, grandchildren and other family members to repay outstanding LTC bills. For financial advisors and their clients, this is a wake-up call: Clients not only have to plan for their own future needs but also make sure their parents’ LTC finances are in order.

A Web Of Legal Statutes
The legal mechanisms underpinning these efforts vary. In 28 states, filial-support laws are on the books. They “essentially establish a legal precedent of financial responsibility among family members for the expenses incurred by a loved one, particularly in the case of health care or long-term care,” says Chris Orestis, CEO of Life Care Funding, an LTC specialist firm headquartered in Portland, Maine. But other states pursue similar outcomes through a spider’s web of statutory precedents.

For Medicaid and other state agencies, a primary legal source is the Omnibus Budget Reconciliation Act of 1993, a tax reform bill passed during the Clinton administration. Buried in the act, Orestis explains, are rules that “compel state agencies to collect back funds they’ve expended on Medicaid services from families if they discover the families have assets available,” he says.

Orestis gives an example. Before Medicaid benefits kick in, you’re supposed to liquidate the cash value of any life insurance policies and spend the proceeds on health- or long-term care. If Medicaid discovers you did not, it will essentially fine you to pay back any money it’s spent on your behalf. “Even after you die and your family collects a death benefit on that insurance, Medicaid can sue the family in probate court to recover what the state spent on care,” says Orestis. “It doesn’t matter if the family intentionally deceived Medicaid or it was an accident.”

The same may be true for any other asset the family holds. “State agencies will go after it,” he says. “They not only have the right but are federally required to.”

If that tack doesn’t work—or if it’s not a Medicaid case, say—litigants may employ other means to claw back funds. “New Hampshire, for example, repealed filial-support laws and substituted a theory of fiduciary obligation,” says Pearson, explaining that a loved one who has been given a power of attorney can be held personally liable for any unpaid bills. “It happens for a variety of reasons, both innocent and not so innocent,” she says.

Sometimes it’s a case of out-and-out fraud—for instance, if the parent is suspected of transferring property to an adult child just to claim poverty, or the child misappropriated the parent’s assets for personal gain. Yet Pearson tells of another case in which the parties simply assumed that they had Medicaid eligibility, but it never actually came through “for not entirely clear reasons,” she says, and the nursing home’s bill was never paid. The court permitted the nursing home to go against the innocent adult child for repayment. “There’s nothing to indicate that he did anything to make the parent ineligible,” she says.