After her 73-year-old husband, Harold, suffers a paralyzing stroke, Mildred and her daughter, Joan, come to you. Dark circles have formed under Mildred’s eyes. Her hair is disheveled. Joan holds her hand.
“The doctor says Harold needs long-term care in a nursing home,” Mildred says. “I have some money in savings, but not enough. I don’t want to lose my house and all our hard-earned money. I don’t know what to do.”
Joan has heard about Medicaid benefits for nursing homes, but doesn’t want her mother left destitute in order for Harold to qualify for them. Joan wants to ensure that her father’s medical needs are met, but she also wants to preserve Mildred’s assets.
“Can’t Mom just give her money to me as a gift?” she asks. “Can’t she give away $10,000 a year? I could keep the money for her so she doesn’t lose it when Dad applies for Medicaid.”
Joan has confused general estate and tax laws with the issue of asset transfers and Medicaid eligibility. A “gift” to a child in this case is actually a transfer and Medicaid has very specific rules about transfers.
At the time Harold applies for Medicaid, the state will “look back” 3 years to see if any gifts have been made. The state won’t let you just give away your money or your property to qualify for Medicaid. Any gifts or transfers for less than fair market value which are uncovered in the look-back period will cause a delay in Harold’s eligibility for Medicaid .
In North Carolina for example, every $6,300 (the number for 2014) given away during the 3 years prior to a Medicaid application creates a one month period of ineligibility for nursing home costs. So if Harold and Mildred gave their daughter $16,600, Harold will be ineligible for Medicaid for 2 months for the nursing home care.
So what can Harold and Mildred do? There are a number of steps they can take, ranging from proper gifting strategies to personal care contracts (i.e. paying the children for care received), to private annuities, to a commercial “Medicaid Friendly” annuity. More information about these strategies and more are discussed on this website.