Long-Term Care – Part XII (The Medicaid Gifting Rules)
The Greatest Financial Risk for Seniors: Paying for
Long-Term Care – Part XII (The Medicaid Gifting Rules)
In my experience as an elder-law attorney over the past 18 years, I find that many seniors and their families continue to have misconceptions about the Medicaid “gifting” rules. So here are a couple of common misconceptions we see in this regard.
- I can give $10,000 per person every year without any Medicaid “penalty.” This is a very common misconception, caused by confusing a federal gift-tax rule with the Medicaid rules.
- For federal gift-tax purposes, in 2019 you can give up to $15,000 to as many different people as you wish without any gift-tax consequences. (But since the law allows each one of us – regardless of race, creed, or economic status – to give away $11.4 million during our lifetime or after death – or $22.8 million per married couple – without paying any federal gift tax or federal estate tax, those are two taxes the readers of this article won’t need to lose any sleep over.)
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For Medicaid purposes, the only free-pass you get for gifting purposes (based solely on the amount of the gift) is $500 in any one calendar month. (That’s $500 total, not $500 per person.)
- Note: This $500-per-month exemption creates an asset-protection opportunity. For example, you could set up a gifting plan to transfer up to $500 on the first of each month to an account in one or more of your children’s names. As long as you didn’t make any other gifts in any of those months, you could transfer up to $6,000 a year to your children without creating any Medicaid consequences.
- If I make any gifts, I can’t be eligible for Medicaid for five years. This is not the law. Every week at my office we are helping seniors and their families legally protect a substantial part of their assets, even in a crisis situation, when a parent or spouse is already in a nursing home. But a right granted to you in the law is of no benefit if you don’t know about it or don’t understand what it means. If you think it’s too late to do anything once you’re in a nursing home – and nearly everyone I talk with thinks it is – then you won’t seek help because you “know” it’s already too late to protect any assets.
I can think of a couple of reasons why this misconception is so widespread:
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- First of all, it’s partly true. That is, if you make a gift and do not file a Medicaid application until at least 61 months have passed, that gift will not create any delay in your Medicaid eligibility. But this is true because the gift would then be beyond the “look-back” period and not even have to be disclosed on the Medicaid application, and so there would be no ineligibility period, whether the gift was $5,000 or $500,000.
- A second reason is because of misleading information you may be given, for example from a well-meaning friend who had a family member in a nursing home, or from something you found on the Internet, such as the following: “A person is not permitted to gift any of their assets to another individual without compensation within five years of applying to Medicaid.”[1] This statement is simply false.
Here is a correct statement of the Medicaid gifting rule:
“If you have made any gifts:
- within the “look-back period” – currently 60 months (five years) prior to filing a Medicaid application;
- in excess of $500 total in any one month; and
- not otherwise covered by a specific exemption in the Medicaid law;
then you will be ineligible to receive Medicaid payment to cover your nursing-home care for a period of time. That period is calculated by dividing the total non-exempt gifts you made by the average cost of a nursing home in your state at the time you file the application.
A few examples should be helpful to show how this rule works in practice.
Example #1. In Pennsylvania the average cost of a nursing home for 2019 is $10,420.14 a month, but to simplify this explanation let’s assume it is exactly $10,000. So if the total gifts you made during the look-back period is $40,000 (for example, $2,000 a year to each of your five children over the past four years), then your ineligibility period would be 4 months ($40,000 divided by $10,000). The rationale for this Medicaid rule is essentially the following: “You chose to give $40,000 to your children. There’s nothing wrong with doing that, but if you hadn’t made those gifts that $40,000 would still be in your bank account, and you could then have used that money to pay for 4 months of nursing home care. So don’t expect to get the tax-payers to cover the cost of your care for the next 4 months.”
Example #2. Four years before applying for Medicaid, an elderly woman sells her home to her son for $75,000. The fair market value of the home at the time of sale was $125,000. The Medicaid Office would view this as a gift of $50,000; that is, she sold her home for $50,000 less than its value. So she would be ineligible to receive Medicaid for the next 5 months ($50,000 divided by $10,000).
Example #3. For a period of 8 years, a great aunt gave her great niece a total of $7,000 each year, totaling $56,000. However, because the look-back period is 5 years, it is only the gifts made during the past 5 years that are counted. So $7,000 a year times 5 years = $35,000, and with the average cost of a nursing home $10,000 a month, great aunt’s period of Medicaid ineligibility will be for 3.5 months ($35,000 divided by $10,000).
Note: Under the current Medicaid rules, the ineligibility period begins to run not on the date that the gift was made, but on the date that you become “otherwise eligible” for Medicaid – that is, the date you meet all of the other requirements for Medicaid (your doctor confirms that you need a nursing-home level of care, your money is down to just a few thousand dollars, and you have filed a Medicaid application). In other words, it’s the date you would have been eligible for Medicaid had you not made any gifts. For example, if you put your house into your children’s names on August, 5th, 2016, but didn’t become “otherwise eligible” for Medicaid until March 16th, 2018, your period of ineligibility will begin on March, 16th, 2018.[2]
Next month’s article will continue this discussion of the Medicaid gifting rules.
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The content herein is for general informational purposes only and does not constitute legal advice. For specific questions you should consult a qualified elder law attorney.
Note: Working with the long-term care system we have in this country, seniors and their families need to understand that despite the restrictions in the Medicaid law, it is almost never too late to protect part or your remaining assets, even when facing an immediate crisis and with no advance planning. Whether you are 75 years old and living in your own home, or have an 85-year-old spouse in a nursing home, there are steps you can be taking now to preserve part – and often a very significant part – of your life savings otherwise at risk of being spent on your nursing care. But it is more true than ever that “time works against you.” Every day of delay in a crisis can result in $250 or more of irretrievable loss, so it is important to contact a knowledgeable and experienced elder law attorney for advice sooner rather than later.
Kemp Scales is now retired, but elder-law attorney Schellart Los continues to serve clients throughout western Pennsylvania from offices in Erie and Titusville. She can be reached toll-free at (888) 827-2788 or by e-mail at [email protected]. The Law Offices of Schellart Joyce, LLC has an Internet presence at www.losscaleselderlaw.com.
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https://www.familyassets.com/nursing-homes/resources/medicaid/Pennsylvania. ↑
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Note: This is not a good way to protect your home (see Parts VII, VIII and IX of this series). ↑
