By Attorney David L. Engler
Many of the elderly and their children/heirs often find themselves wondering how to handle assets in anticipation of going on Medicaid. They have heard that the federal government has rules as to what can and cannot be done with assets. If you are within 5 years of going on Medicaid or are already in Medicaid then this article is for you.
If you find yourself in the situation where you will clearly be within Medicaid’s 5 year look back period, then gifting can help shield some resources under the right conditions.
A person is not allowed to give a gift simply to become eligible for Medicaid. That is why the federal government “looks back” 5 years when the person is applying for Medicaid benefits.
All gifts that were made within this look back period impose a penalty towards the person’s Medicaid eligibility, calculated as the gift’s value as a percentage of the monthly cost of care. This penalty is imposed by way of delaying the individuals final eligibility for Medicaid. In most cases, only gifts with a value greater than $1000 need to be reported, but technically all gifts count. Gifting to family members does not count towards this penalty as long as they are not leaving themselves destitute.
In the case where a non-family member receives a financial gift, the value of that gift will have to be paid down before they are eligible to receive benefits. So, if a gift of $40,000 is made to a non-family member, it is likely this would delay entry into Medicaid as much as 10 months ($40,000 divided by the amount of expected benefit, say $4,000 per month) The entire value of that gift is counted towards this penalty. If the gift is below the reporting threshold, $1000, then it does not count. In the end, a person receiving Medicaid cannot have more than $2000 in liquid assets.
So if there is money transferred before the person applies for Medicaid eligibility and gifts are made to the children and grandchildren by the proposed recipient themselves or by someone who has a power of attorney with defined ability to give a gift, it might not be counted as a resource for determining eligibility. Courts have held that they will not presume that a person was going to single mindedly conserve their resources to pay for long-term care. If the gift is above $1000 to the family member then the issue becomes did the donor leave enough money for themselves to reasonably take care of their future needs.
For example, if a person has liquid assets of $150,000 and believes they should provide for long-term care for themselves of 12 months, this can be deemed to be reasonable.
Medicaid eligibility defers from State to State so it is best to consult an elder law attorney who is familiar with your jurisdiction. We give this a thorough look when our clients call with such situations. That attorney might even have firsthand knowledge of the caseworker’s likes and dislikes which can be a tremendous asset.