The Unintended Drawbacks of Gifting

All too often, aging parents gift their adult children or others with resources to share their legacy and take advantage of tax regulations for gifting each year. However, tax regulations and Medicaid eligibility rules are not the same. Gifting that complies with tax goals and IRS rules may cost even more when long-term care needs arise. The gift may prevent eligibility for Medicaid that otherwise could have protected the very assets a family wanted to preserve by gifting.

Medicaid will cover the huge expense of nursing-home care for individuals with less than about $2000 in available assets (an important distinction because, as we explain elsewhere and in our workshops, assets can remain “available” to the family without being used for long-term care expenses if placed properly in special types of trusts). Though certain categories of assets are not counted in the total, gifting is not an option for Medicaid eligibility. The Medicaid rule that requires a five-year “look back period” or “transfer penalty” means that any money gifted in the five years prior to the Medicaid application will cost the applicant dearly in penalties, the assumption being that the “gift” should be used for long-term care. Depending on the size and number of the gifts, the penalty could be substantial.

Unlike tax laws, in the Medicaid context, gifts of any amount that are given during the look-back period can be penalized, which delays Medicaid coverage and increases costs.

There are some exceptions for certain transfers that will not count as a “gift” by older people seeking Medicaid coverage for long-term care needs. These include gifts to spouses and siblings under certain circumstances, disabled children, and children who are caregivers and live at home with the elder for a span of time. But overall, gifts and Medicaid do not go together. The Medicaid rules are complicated and the consequences for mistakes can be very expensive. There are a number of options to protect assets and still qualify for benefits, but these options must be weighed with great care. This is why it’s best to consult attorneys who, like us, are qualified by experience and expertise in Medicaid law.

Contact us to learn how to retain your existing resources for those you love while also securing Medicaid assistance for long-term care needs.

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