The season of giving is just around the corner. Retailers are getting deliveries of holiday stock even as Halloween candy languishes on the shelves, and gifts to children and grandchildren of all ages will soon abound - perhaps especially to those college-aged children and grandchildren who find themselves at the start of their winter break but the end of their credit limits!

But now is a spooky season, a time for scary stories designed to shock and horrify those to whom they are told. And what is more horrifying than the thought of needing full time nursing care without the funds to cover the 5-10k monthly bill that comes along with it? Bankruptcy caused by medical bills, not to mention families torn apart by the never ending duty of caring for a loved one who can no longer care for themselves, is a terrifying prospect. Medicaid makes a great villain because, to the uninitiated, it is mysterious and unpredictable. Who knew that you couldn’t give money away in the 5 years prior to applying for Medicaid? And why can’t you? What will happen if you do? Like all good horror stories, we can see ourselves in the victims - it’s easy to understand how someone can make a wrong move when they don’t know the rules of the game.

Many Medicaid horror stories center around the gifting penalties. When we meet with new clients about Medicaid planning, many will start nodding their heads with a knowing expression when the gift penalties are discussed. This is the big bad Medicaid they’ve heard about - the cold, unflinching government agency that will take away all your money, your house, and your dignity in exchange for covering the bill for your nursing home.

Luckily, like most horror stories, these “tales from the Medicaid crypt” are exaggerated - based on a combination of misinformation, misunderstanding, and the “telephone” effect of knowledge shared between members of a community. The road to hell is paved with good intentions. Don’t take that road, listen to people who actually know exactly what they’re talking about based on real-life first hand knowledge and experience.

1. Why Can’t Medicaid Recipients Give Money Away?

Medicaid is a need-based government program. If your assets are at or below a certain level, you will financially qualify for Medicaid assistance. There are many ways to financially qualify for Medicaid assistance that do not involve spending all your money. However, one of the surest ways to disqualify yourself from Medicaid coverage is to try to give your money away in an effort to hide or protect that money from Medicaid.

Giving your money away doesn’t work because of something called the Medicaid 5-year look-back period. Medicaid looks back 5 years prior to the application date, and assesses specific penalties for any gift transfers made during that 5-year period. For every two hundred or so dollars that you give away in the 5 years prior to your Medicaid application, Medicaid will inflict a one day penalty (which adds up to be a one month penalty for roughly every five to six thousand dollars gifted)

The reason why this is “a big deal” is because those penalties don’t start until you are otherwise qualified for Medicaid and your benefits are about to start. In other words, Medicaid will withhold your coverage exactly when you need it most. If you make a gift and then need to apply for Medicaid 5 years and one day later, you’ve made it out of the look-back period - there’s no penalty for you. However, it’s not a good strategy for success. Your health is unpredictable, and gambling on your family’s financial security by gifting and hoping for the best is just that - gambling. If Medicaid is in your future, the season for giving is never! The best time to give was 5 years ago, the second best time is never.

Even if you do make a gift transfer outside the 5 year look-back period, once you gift it it’s gone - the recipient can do with the gifted assets as they wish. So too can their creditors, now and future , their spouses if they get divorced, etc - don’t put your financial future into your children’s hands any sooner than you have to.

In a similar vein, when Medicaid determines eligibility for a married person, they will consider all assets in either spouse’s name. This means that you can’t get around the asset limits by transferring things between spouses - anything owned by one spouse is considered owned by both spouses as far as Medicaid is concerned.

2. So if I Shouldn’t Gift Now, What Should I Do?

We want to preface this by saying that there are a myriad of ways to create Medicaid eligibility, and most of those methods are best employed at (or very near) the time that the Medicaid applicant needs to be placed in a skilled nursing facility. The strategies that we detail here are unique in that they must be employed ahead of time in order to be effective. However, don’t worry - it’s not too late for you ! Give us a call for a completely free, no obligation, case evaluation and we will tell you which strategy best fits your unique situation. There is no “one size fits all” solution in any area of law, and especially not in this one.

That said, here are a couple of options to transfer assets to loved ones that don’t create Medicaid penalties - let’s call them “Gift Substitutes.” These are perfectly legitimate, Medicaid compliant ways to transfer a theoretically unlimited amount of money between a future medicaid recipient and their loved ones. However, they must be employed carefully, and deployed sooner rather than later.

Care Contracts

You can’t give money away, but you can pay money to someone in exchange for services rendered. A payment for services is not a gift if there is a 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.

Rental Agreements

Similarly, rent payments are not gifts as long as those payments are made according to a legitimate rental contract, and as long as those payments represent the fair market value of rent in the area. This is a great solution to protect assets for future Medicaid applicants who live with their children, or at properties owned by their children.

Like all Medicaid planning strategies, these strategies will not work in every case and require the counsel and supervision of an experienced elder law attorney. Call us today to schedule your free, no obligation, consultation and we’ll formulate a plan that is uniquely yours.

3. Does a “Gift” Include giving birthday money to my grandkids, or paying for their textbooks?

Short answer: Yes, but unless you’re giving them very large amounts of money, the penalty period would be very short. Examples of transfers that often do create large penalties are: selling something for less than fair market value (like selling a car worth 5k to someone for $5) , adding a child’s name to the title of your house (this is considered a gift of the equity that you have in your house), children re-titling their parents’ bank accounts to themselves - all these actions would almost certainly create medicaid penalties (of course, there are always case-specific exceptions - talk to an Elder Law Attorney to find out if your case qualifies for those exceptions)

4. Wait, can't I give away $15,000 per year and still qualify for Medicaid?

This one is not even close to true. In fact, the 15k figure has absolutely nothing to do with Medicaid at all. Tax law is simply not relevant whatsoever in a discussion about Medicaid. The 15k per year gift people ask about when discussing Medicaid planning is a tax law figure and is not relevant with respect to Medicaid's specific asset transfer rules. Planning for Medicaid according to IRS regulations rather than Medicaid regulations is like studying a Hawaiian guidebook to prepare for a trip to Antarctica - it just doesn’t make any sense. The maximum monetary figure that Medicaid applicants need to concern themselves with is the “penalty divisor” for their state - the penalty divisor is the state assessed average cost for nursing home care by which the state assesses medicaid penalties.

In reality, giving away 15k/year in the 5 years prior to a Medicaid application would create a penalty period of around 15 months - meaning that once you were in the nursing home and otherwise qualified, you’d have to wait over a year for Medicaid to start paying the bill. In the meantime, you’d have to “private pay” (pay the full nursing home bill out of pocket.) This is a good illustration of the need to employ a Medicaid expert for Medicaid planning. Call ours today! 913 338 5713.