His $90,000 Stake in a Private Company Could Look Like a Windfall. Medicaid May Price It Before He Finds a Buyer

Private company shares with no ready buyer and no quoted market price can still complicate a Medicaid application. If the family does not establish a value first, the agency can assign one.

A retired engineer once helped a friend start a manufacturing business and received stock as part of the arrangement. He represents the kind of client elder law attorneys often describe. Now he needs nursing home care, and his family is completing a Medicaid application. His most recent statement shows $90,000 in private-company shares.

Those shares have no ticker symbol, no daily quote and no brokerage app with a sell button. No one has offered to buy his interest in years. Even so, Medicaid may count the shares against him and assign a value before he ever finds a buyer.

Families often confuse Medicare with Medicaid in this situation. Medicare, the federal health insurance program for older adults, covers only short skilled-nursing stays after a hospitalization. Long-term nursing home care is paid for by Medicaid, the joint federal-state program for people with limited income and assets. That is why Medicaid’s asset test matters so much.

How Medicaid Treats Private Stock Without a Market Price

Many state Medicaid programs borrow their resource rules from Supplemental Security Income, the federal cash benefit administered by the Social Security Administration. Under those rules, stock generally counts as a resource if the owner has the legal right and practical ability to convert it to cash.

The SSA’s operating manual for SSI caseworkers tells them to assume an owner can sell shares at will at current value unless evidence shows otherwise. Public stock is simple: caseworkers use the closing price. With closely held stock, the manual notes that shares trade infrequently, are transferred privately and often come with restrictions. In those cases, the agency must work from an estimated cash value.

State rules are not identical. Some states use their own resource rules, so the starting point can vary depending on where the application is filed.

Why a Paper Value of $90,000 Can Still Delay Eligibility

The shares can make him ineligible even if he cannot turn them into cash right away. An interest that cannot be sold immediately can still jeopardize Medicaid eligibility.

The burden also falls on the applicant. The agency’s manual places the responsibility for proving the value of non-traded stock on the individual. A buyback agreement may cap the price. Corporate bylaws may prohibit sales to outsiders.

It may also be true that no one wants a minority stake in a small family business. Any of those facts could push the real value well below the amount shown on paper, but the family has to prove it. If they do not, the larger figure stands.

Meanwhile, nursing home bills continue to arrive. If the application stalls, the family may have to pay out of pocket while disputing a valuation that could have been established earlier.

Records That Can Support a More Realistic Valuation

The case for a lower value becomes stronger when the family can show exactly what limits the shares and what a real buyer would likely pay. Useful documents include:

• The shareholder agreement and bylaws
• Any transfer restrictions, consent requirements or rights of first refusal
• Recent private sales or outside offers
• The company’s buyback terms, including any formula price
• Recent financial statements
• A valuation letter from the company’s accountant or another qualified appraiser

An accountant’s letter can carry special weight. Social Security guidance treats a written estimate from the company’s accountants as preferred evidence, ideally explaining the basis for the estimate, such as a recent sale, a recent outside offer, assets minus debts, or a wind-down or bankruptcy analysis.

Shares that are simply difficult to sell can still count, leaving only the question of how much they are worth. But a binding restriction that leaves the owner without the legal power to sell them can change whether they count at all. Under the agency’s rules, assets are not resources when the owner lacks the legal right, authority or power to liquidate them.

The agency’s own example involves siblings who co-own stock under a binding agreement that prevents either one from selling without the other’s consent. If one sibling refuses, the stock stops counting for the other. If consent is later given, the stock begins counting starting the month after consent is granted.

That distinction is made in the paperwork. A shareholder agreement that requires board approval for any transfer is very different from one that merely gives the company first refusal rights.

Get the Valuation First, Then File the Medicaid Application

The better sequence is to establish the value first and submit the application second. Families that gather the agreement, obtain the accountant’s letter and document every failed effort to find a buyer can present their own number.

Eligibility can turn on what those shares are actually worth in cash, not on what they originally cost or what appears on a company statement. Families that document that value before applying bring evidence with them. Families that wait give the paper figure more room to control the outcome.