“Of course, you would not think of a gift to your child as fraud, but Medicaid may see it differently. They may construe it as an attempt to offload your assets to fall below the asset limit required to qualify for Medicaid benefits.”
If you are in your fifties or older, you may have heard about the Medicaid penalty period, However, you might not know what it is. You know that if you give people gifts during the wrong block of time, you can end up ineligible for Medicaid help with nursing home costs. Not being clear on what you can and cannot do, keeps you in a stressed-out state of limbo. You want to make gifts to your adult children to reduce the taxes on your estate one day, but you do not want to get hit with negative financial repercussions. You need information on whether you should choose to gift or not to gift – understanding the Medicaid gifting penalty.
How the Medicaid Gifting Penalty Works
You can make generous gifts to your children, and you are in good health, so you think that if you ever need nursing home care, it will be many years later. You have four married children. You give each child and his or her spouse $10,000 for a total of $80,000. Four years and 11 months go by with no problem, and then a health crisis causes you to need to move into a nursing home right away.
You apply for Medicaid benefits to help pay your nursing home costs. One of the first things Medicaid does is put all of your financial accounts and transactions for the last five years under a microscope. This analysis is called the “look back” period. They are looking for fraudulent or improper transfers of assets. You would not think of a gift to your child as fraud, but Medicaid may see it differently. They may construe it as an attempt to offload your assets to fall below the asset limit required to qualify for Medicaid benefits. Many people do not want to spend what they view as their children’s inheritance on nursing home bills, so they give their assets to their children, not realizing that Medicaid will penalize them for these transfers.
How to Calculate the Penalty
Medicaid will examine any significant gift or asset transfer you make within the 60 months, before you apply for Medicaid benefits to see if it is improper. If Medicaid determines that the $80,000 in gifts violated the rules against fraudulent transfers, they will impose a harsh financial penalty – measured in time, not dollars. They will refuse to pay your Medicaid bills for a time equal to what that $80,000 would have bought you at the average nursing home in Alabama.
For example, if Medicaid says the average nursing home in Alabama costs $5,800 a month, they will make you somehow pay for the first 13.79 months you are in a nursing home. They do not care you are just one month away from the $80,000 gift falling off of their radar. Medicaid does not prorate the penalty. They will hit you with the same 100 percent penalty for a gift you made 59 months before you applied for Medicaid, as they will for a gift made the day before application.
Avoiding the Medicaid Gifting Penalty
Knowing this information about the Medicaid gifting penalty can give you the advantage of possibly avoiding the penalty. You can sidestep the $80,000 penalty by waiting a month to apply for Medicaid. You need the nursing home care, so move into the nursing home, but pay the $8,000 out of your private funds. After the first month passes and the $80,000 slides off the books, then apply for Medicaid nursing home assistance. Paying $8,000 is much cheaper than having to come up with $80,000 to pay for 13.79 months of care.
The Medicaid program is different in every state, so talk with an elder law attorney near you. This posting discusses the general law, which may not be the same as in your state.
Forbes. “The Medicaid Penalty Period Explained.” (accessed January 21, 2018) https://www.forbes.com/sites/markeghrari/2014/08/08/the-medicaid-penalty-period-explained/#78e5b8912ee4
Paying for Senior Care. “What is the Medicaid Look-Back Period? What Penalties, Exemptions & Workarounds Exist?” (accessed January 21, 2018) https://www.payingforseniorcare.com/medicaid/look-back-period.html