Debunking 5 Myths About Gifting to Children
Every year one of the most frequently asked questions we get is “How will the gifts I’ve made to my children affect my eligibility for Medicaid benefits?” Given the ever-changing laws in the Medicaid field, every year our answer is just a little bit different.
There are so many misconceptions surrounding Medicaid with respect to financial gifts that we thought we’d start by addressing some of the more frequently asked questions:
Myth #1 - Is it true under current Medicaid laws that once a parent has entered the nursing home, they can no longer make financial gifts to their children?
No. In fact, a proper gifting program is a great Medicaid planning technique. At the time an applicant applies for Medicaid, the state will “look back” 5 years to see if any gifts have been made. Any gifts or transfers of less than fair market value during the five-year look back will cause a penalty to begin tolling at the time the applicant would otherwise be qualified for Medicaid. This could result in delays and denials of an applicant’s eligibility. A proper gifting program requires calculating the penalties created by the gifts and may require that an application be filed in order to start the penalties tolling.
Myth #2 - Is $14,000 per year the maximum my mother can give me if she is going to apply for Medicaid?
No. The $16,000 per year gift people ask about when discussing Medicaid Planning is a tax law figure and not at all relevant with respect to Medicaid’s specific asset transfer rules. The monetary figure Medicaid applicants need to concern themselves with is the “penalty divisor” for their state. The penalty divisor is the average monthly cost for nursing home care as calculated by the state.
As of 2023, in Missouri the penalty divisor is $6,983 (every $6,983 transferred is one month of ineligibility for Medicaid) and in Kansas the penalty divisor is $247.62 per day (every $247.62 transferred is one day of ineligibility for Medicaid). These figures are subject to change each year which is why consulting an expert knowledgeable in Medicaid law is imperative.
Myth #3 - What if my mother just gives me all of her money to hold onto for her? Can I tell the state my mother does not have any money and qualify her immediately for Medicaid?
Absolutely NOT. Failure to report gifts or transfers made by a Medicaid applicant constitutes fraud. Furthermore, let’s say your mother had $25,000 when she entered the nursing home. If she were to give you all her money in one lump sum the gift would result in a penalty (i.e., a period of ineligibility) in both Missouri and Kansas of about 4 months. Again, this penalty would not start tolling until your mother filed her application for benefits.
Myth #4 - I know that my mother’s house is considered “exempt” under Medicaid laws. Can my mother give me the house without incurring penalties?
No. Any assets which are given away (personal property or real property) are considered gifts. If your mother gave you her home the state will assess a penalty based on the fair market value of the house at the time your mother transferred the home to you.
Myth #5 - Is it considered a gift, if I pay my children to take care of me?
A: A payment for services is not a gift if there is a properly executed contract in place that creates a legitimate employer-employee relationship between the payor and the payee. This is a great solution for children providing care for their parents, or any family member providing care for a loved one that may need Medicaid assistance in the future. Without a care contract in place, payments for care are considered gifts. Once the care contract is entered into, payments for care will not create Medicaid penalties as long as those payments represent the fair market value of the services rendered.
There are a number of steps a Medicaid applicant can take to preserve their assets, ranging from gifting strategies, personal care contracts, private annuities, transferring assets to a disabled child, etc... What you need to remember is that the laws are constantly changing and the planning you did for your mother-in-law six months ago may not be proper for your mother tomorrow. Consult a knowledgeable elder law attorney for advice.