By Tammy Zilske, Long-Term Care Planner, Certified Medicaid Planner™
Many years ago, my husband and I took our four-year-old son to a park, where another child was having a birthday party. Our son was a bit upset that he wasn't invited to join in the festivities. We had a rare creative moment: we bought a reduced priced cake, wrapped up toys from the back of his closet, and threw our son a fake birthday party.
Just as our son may not have fully understood and valued a “gift”, understanding how The Department of Human Services classifies a gift can also be confusing.
Here are common questions we get at the law firm about gifting:
Why does it matter if I make a gift?
It matters if you need long-term care and you ask Medicaid to pay for your care. As a result of the Deficit Reduction Act of 2005, the gifting look-back period changed from three to five years. Any non-exempt transfers or gifts in excess of $500 in a calendar month would result in an ineligibility period, which means a denial of benefits.
Do I really need Medicaid to pay for my care?
The average cost of long-term care in Pennsylvania is $10,420.14 (2019) per month, which is over $125,000 per year. While some nursing home residents are able to privately pay for care for a short period of time, most eventually run out of money and need to apply for Medicaid benefits. Understanding the Medicaid rules in advance is essential to successfully qualifying for benefits.
What happens if I did make a non-exempt gift and apply for Medicaid benefits within five years?
To qualify for Medicaid benefits, your physician and the office of aging must certify that you meet the criteria for nursing home level of care. You must complete a Medicaid application and demonstrate that your assets are reduced to the Medicaid eligibility level. The assigned case worker will review five years of financial statements and if any non-exempt gifting has occurred within five years, a denial of benefits will be issued.
For example, if you gifted $100,000 within the five-year look-back, a denial of 9.5 months would be issued ($100,000 ÷ $10,420.14 = 9.5).
What does a penalty or denial mean?
If you were denied benefits as described above, the nursing home will look to you and your family to settle the bill. An unpaid bill could result in legal action and discharge from the facility.
If I transfer my house to my child for $1.00, is that considered a gift?
Yes, if you sell your home for less than fair market value, it will be considered a gift and a denial of benefits would be issued. Fair market value is determined by multiplying the tax assessed value of your home by a common level ratio which is assigned to each county. You can also provide a certified appraisal or fair market analysis by a licensed realtor as proof of fair market value.
How about paying for a grandchild’s college tuition?
Paying a college tuition bill for someone other than you or your spouse is considered a gift and would result in a denial of benefits.
Can I pay a child’s credit card bill or loan?
No, if the credit card or loan charges do not belong to you or your spouse, payment of this debt will be considered a gift.
What kind of documentation does Medicaid require I provide?
When applying for Medicaid benefits, you must provide five years of financial statements for all accounts along with receipts of any large purchases to prove that gifting did not occur.
The IRS establishes an annual gifting limit, does Medicaid follow the same rules?
No, Medicaid does not recognize the IRS gifting rules. Medicaid allows a maximum of $500 to be gifted per calendar month to non-exempt individuals.
Are there exemptions available when transferring my primary residence?
Yes, you can transfer your home to the following individuals without penalty, but there are consequences that must be considered.
- The spouse of an applicant. If the spouse passes before the applicant and their Last Will and Testament leaves the house to the Medicaid applicant, the property will be an available asset.
- The child of the applicant who is blind or determined disabled by the Social Security Administration, regardless of age. If the child is receiving benefits, there are rules about what they can own, and they could lose benefits without proper planning.
- The child of the applicant who is under the age of 21. A minor may not be financially responsible enough to handle property ownership.
- The applicant’s sibling who has an equity interest in the home and who lived in the individual's home for at least one year immediately before the date the individual became institutionalized. You may not have wanted your sibling to own your home.
- The applicant’s child who lived in the home for at least two years immediately before the individual became institutionalized, and who provided care that allowed the individual to live at home rather than in an institution or facility. A physician must certify in writing that the care provided prevented nursing home admission, and the caregiver must provide proof that the home was their residence during that time period.
If I don’t think I need care within five years, should I consider gifting?
Yes, the best kind of planning is pre-planning prior to the crisis. Gifting can be outright or completed through a trust. The benefit of using a trust is that the assets are accessible should care be needed within five years. An attorney can provide you with guidance on the best type of trust for you.
What happens if I have not pre-planned and need care now, can I save anything?
Yes, there are ways to protect assets for your spouse if you are married. If you are single or widowed, we can still help you protect about one-half of your assets, despite the gifting look back rules.
As you can see, Medicaid rules are very complicated. Without proper planning, you and your family could be left vulnerable with unpaid nursing home bills. At Steinbacher, Goodall & Yurchak, you will work with an experienced attorney and Certified Medicaid Planner™ who are knowledgeable about how to properly protect assets. It is always best to plan ahead more than five years before needing care, but there are still ways to protect assets and get through an ineligibility period within five years.
As my son opened his re-gifted gifts, he exclaimed more than once, “Hey, I already have one of these.” Regardless, we had a fun day of playing and celebrating.
We look forward to helping you. Call Steinbacher, Goodall & Yurchak today at 1-800-351-8334 or to schedule your FREE consultation.