The Ghost of Medicaid Gifting Future: Don’t Get Scrooged!

Tis the season for gift giving and, although nobody wants to be labeled a Scrooge, we should consider gift giving penalties when it comes to Medicaid eligibility and tax implications. Not me, you say? Read on to be sure.

As we age, the possibility of needing long term care in a skilled nursing facility becomes more likely.  Many people are shocked when they discover the costs of such care (monthly amounts of $10,000 and more are not unheard of), and except for a relatively short period for rehab, Medicare will not cover the expense.

In fact, these costs must be borne by you, out of pocket from savings and income, in most instances.  It becomes apparent that even those with robust savings can burn through their funds very rapidly.

Some purchase long-term care insurance to cover these expenses, should they arise, but the premiums for these policies are not cheap and the longer you wait to purchase such insurance, the greater the chance you may have a medical condition that renders you uninsurable.  Then, if insurance was/is purchased, will the coverage extend for the remainder of one’s life? So, eventually you may need to rely on Medicaid to pay these expenses once savings are exhausted.

The Medicaid “Look Back” Period

This is when problems can arise, for example, if the person has made any gifts to loved ones during the preceding five-year period (called the look back period.)  You see, Medicaid has some rather drastic rules regarding the transfer of assets.  In fact, you will become ineligible for Medicaid benefits during a period based on the value of all assets transferred (with a few very minor exceptions depending on rules implemented in each state.)

While it would be nice if we could all have some concrete rules and exceptions for gifting, which we could apply to avoid a penalty, unfortunately the law does not provide any such rules other than the few which I will mention shortly.   Therefore, innocent gifts for birthdays, weddings, holidays, and other such occasions could become a problem.  Even gifts to charities can come back to haunt a Medicaid applicant.

Many people assume that since Federal law allows a gift of up to $14,000 (in 2016) without a gift tax liability that such gifts will not be considered a transfer for Medicaid purposes.  Unfortunately, nothing could be further from the truth!!

Even spending cash for oneself can cause a problem if the person cannot provide documentation to a caseworker reviewing a Medicaid application.

Thankfully, there are a few rare exceptions to these transfer penalty rules.

Transfers of assets without penalty can be made to:

• your spouse;
• your child who is blind or permanently disabled;
• a trust for the sole benefit of anyone under age 65 who is permanently disabled.

Also, a person may transfer their residence to the following persons without penalty:

• your spouse;
• your child who is blind or permanently disabled;
• your child who is under age 21;
• a trust for sole benefit of anyone under 65 and permanently disabled;
• your child who has lived in your home at least 2 years prior to your moving to a nursing home and who provided you with care that allowed you to stay at home during that time; or
• a sibling who already has an equity interest in the house and who lived there for at least a year before you moved to a nursing home.

Think About This

1. How will you pay for long term care?
2. Can you afford to purchase a long-term care policy?
3. Do you have sufficient assets to self-pay without running out before you expire?

That is a gamble for any person regardless of wealth.  Be cautious when gifting to family and friends since you may be jeopardizing future Medicaid benefits.

Have questions about Medicaid eligibility and tax implications of gift giving? Call me, your hometown Elder Law Attorney, to set up your personal consultation to clarify the complex Medicaid rules. Let’s discuss how to avoid the possibility of unexpected Medicaid transfer penalties. If you don’t get this right, you just might get Scrooged!