After her 79 year old husband, Ralph, suffers a paralyzing stroke, Anne needs advice. In a meeting with an elder law attorney, Anne discusses the fact that she does not have enough money in savings to pay for nursing home care.
Anne’s son Frank has heard about Medicaid benefits for nursing home residents, and doesn’t want to leave his mother broke in order for Ralph to qualify. He wants to ensure that his father’s medical needs are met as well as preserve Anne’s assets.
Frank has suggested that Anne simply give him $10,000 a year so he could keep the money while his dad applies for Medicaid. Unfortunately, Frank has confused the gift tax law with the issues of transfers and Medicaid eligibility. A “gift” to a child is actually a transfer, and Medicaid has very specific rules about transfers.
When Ralph applies for Medicaid, the state will look back five years to see if any gifts have been made. The state does not allow you to just give away your money and property in order to qualify for Medicaid. Any gifts or transfers for less than fair market value will result in a penalty period in which Medicaid benefits are denied.
Anne can, however, institute a formal gifting plan, save a good portion of their estate, and still qualify for Medicaid. However, the gifts must not violate the Medicaid rules. Generally if done correctly, you can save approximately half of your assets through a properly designed gifting plan.
It is important to remember that when money is given away, it is given away forever. Studies have shown that money received as a gift is often gone within three years. In other words, even when children promise that the money will be available, their own emergencies may cause them to spend that money. You should consult with an elder law attorney on how to set a plan that complies with Medicaid laws and achieves your goals.