Long-term Care, Part XVIII (Unintentional Gifts)

Losscales | January 4, 2021

The Greatest Financial Risk for Seniors: Paying for

Long-term Care, Part XVIII (Unintentional Gifts)

Kemp Scales, CELA*

The last twelve articles in this series involved a discussion of the Medicaid gifting rules and how they can be used to protect assets from the risk of having to be spent down paying for long-term nursing care:

  • parts VII through XI concerned protecting the family home;
  • parts XII and XIII discussed some common misconceptions concerning the Medicaid gifting rules; and
  • parts XIV through XVII concerned exempt transfers – gifts that do not create any delay in Medicaid eligibility.

This article looks at the opposite of exempt transfers – that is, instead of outright gifts that do not affect your Medicaid eligibility, there can also be transfers that you never intended as gifts but might well affect your Medicaid eligibility. This and the following article will identify three of the most common misunderstandings leading to unintentional gifts we see with families who come in to talk about asset-protection:

  • Paying a Family Member to Provide Care. We often meet with families who have an aging parent who has been paying one or more children or other family members to compensate them for the care they have been providing the parent. Sometimes children have left their jobs in order to do this. The parent doesn’t consider these payments to be gifts. Indeed, had the children not been providing this care, the parent would either have had to pay just as much to outside caregivers, or move into an assisted living facility for at least the same cost, or maybe into a nursing home at a much greater cost. Nevertheless, the position taken by the Medicaid office is that providing free care to parents is just what children naturally do. And thus it is presumed that such care was provided for free unless:

    • the care was provided pursuant to a written care agreement;
    • the care agreement was in place at the time the care was provided (that is, the care agreement cannot be retroactive); and
    • the payment amount is reasonable (that is, the family member is paid no more than what the parent would have had to pay an outside caregiver for the same services).

Thus it is important to get a properly drafted family-care agreement in place in order any such payments going forward not be treated as disqualifying gifts.[1]

  • Transfers to a “Medicaid-Qualifying Trust.” In connection with Medicaid planning, a term we hear from time to time is “Medicaid Qualifying Trust.” It’s easy to see why one might well assume that transfers to such a trust would not create any delay in Medicaid eligibility for long-term nursing care. But that’s not correct. The name refers to certain irrevocable trusts containing assets that you transferred into the trust but which are not treated as countable, available assets. This means that the trust assets – no matter how large – would not prevent you from “qualifying” for Medicaid to pay for your nursing-home care. However, the transfer of assets into such a trust is a non-exempt gift for Medicaid purposes. This means that it will create a delay in your Medicaid eligibility if you apply for Medicaid within 60 months after making this gift. (For Pennsylvania in 2019, every $10,420.14 that you gift will create one month of ineligibility for Medicaid.)
  • The IRS Gift-Tax Exemption. The great majority of the people we see in our office mistakenly believe that the Medicaid rules allow them to gift a certain amount of money (some think the number is $10,000, others have heard that it’s $14,000) per year to as many of their family members as they choose with no effect on their Medicaid eligibility. This is not correct. Nor is the related belief that this rule creates a limit on how much you are allowed to give away – not more than $10,000/$14,000 per person each year. As Timothy Takacs, a Certified Elder Law Attorney in Tennessee, put it in an article he wrote nineteen years ago: “This myth hangs on as persistently as a junkyard dog, and it is doubtful that it will ever really unleash its hold on the public mind.”[2] Our clients are confusing the Medicaid rules with the annual federal gift-tax exemption (currently $15,000 per person per year).[3] For Medicaid purposes, even a cash gift to a child for graduation can violate the Medicaid gifting rules. To be sure, in Pennsylvania there is an amount of money that parents can gift to children – or, indeed, anyone else – without affecting their Medicaid eligibility. But, unlike the gift-tax rule, the Medicaid “free-gift” rule is limited to $500 total (not $500 per person) in any one calendar month.

The next article in this series will discuss the most frustrating reason of all that results in clients making unintentional gifts: lack of documentation.

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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 “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 schelly@losscaleselderlaw.com. The Law Offices of Schellart Joyce, LLC has an Internet presence at www.losscaleselderlaw.com.

  1. See Part XIV of this series for a more detailed discussion of Family Care Agreements. ↑

  2. https://www.tn-elderlaw.com/free-resources/resources/myths-about-medicaid ↑

  3. As to the income-tax consequences of exceeding the annual $15,000 per person limit, there is also a lifetime federal gift-tax exclusion (currently $11.4 MILLION per person, or $22.8 MILLION for a married couple). Suffice it to say that none of the folks coming to see us about asset-protection planning need to be concerned about exceeding the IRS gifting limit. ↑