We recently had this question posed by one of our readers. Because this issue is so important and one which so often causes confusuion, we decided to share the answer with everyon who reads our blog.
My mother is widowed and is beginning to decline in health. I have four siblings. We know that in order to qualify for Medicaid, Mom cannot have more than a certain amount of assets in her name. She rents a house, but has approximately $200,000 in various CD accounts. A friend of hers told her that she can give up to $13,000 to each of us annually without penalty and still qualify for Medicaid if she needs it in the future, is that correct?
NO! We often see clients who believe this to be true. It is not uncommon to find that clients have engaged in this method of gifting, thinking they were doing a prudent thing. Only when Medicaid application became necessary did they find that these gifts would result in long periods of ineligibility. Your friend is likely referring to is the $13,000 annual gift tax exclusion under the Internal Revenue Code. The “annual gift tax exclusion” is the amount a person can give away to any individual each year without it being considered a taxable gift. Under the Code, all gifts made in any given year are subject to a gift tax. However, the first $13,000 gifted to each individual in any given year is exempted from that gift tax. For that reason, lifetime gifting is a way to reduce their taxable estate at death.
Oftentimes, seniors and their children assume that this same exemption holds true for Medicaid eligibility. They mistakenly think that gifting this amount of money away annually will not impact future Medicaid eligibility. In 2006 the Medicaid rules changed drastically, one of the most prominent changes that we saw was the way that Medicaid considered and calculated penalties based on transfers and gifts made by the applicant to a third party. The current law requires applicants for Chronic Nursing Home benefits through the Medicaid program to account for all gifts and transfers made within the five years prior to application. The period of ineligibility is determined by dividing the total amount transferred by the regional rate of Nursing Home care, which on Long Island is $11,227 per month. For each uncompensated transfer of $11,227 the applicant will be subject to one month of Medicaid ineligibility.
It is also important to note that the penalty period does not begin to run as of the date of the transfer. The period of ineligibility does not begin to run until the applicant is “otherwise eligible for Medicaid”, meaning they are in a skilled nursing facility and are otherwise financially eligible. The 2006 change in Law has resulted in many seniors being deemed ineligible for skilled nursing coverage, based on transfers such as the ones you have inquired about.
If upon the advice of her friend, your mother gifted $13,000 to each of her five children each year for three years and then needed skilled Nursing Home care within five years of those uncompensated transfers, that $195,000 would be divided by $11,227 and she would be deemed ineligible for Medicaid for a period of 17.4 months.
What makes this even more difficult for some families is that an inability to give the money back or help mom pay for her care is not taken into consideration, causing many families great hardship. It is important for families who have done this sort of gifting to know that there are still options available to them.
In order for an individual to qualify for Medicaid, applicants may only have a total of $13,800 in assets. However, there are ways to spend down assets without incurring penalties. Even though the look-back period has been extended to five years, there are still opportunities for families to preserve assets even when faced with a crisis situation. The changes and complexity surrounding Medicaid eligibility makes it prudent to consult with an Elder Law Attorney who is experienced with advanced Estate Planning and Medicaid Planning.
posted by: Robin Daleo & Tara Scully