If there is a possibility that a loved one may need governmental assistance in paying for long term care (i.e., a nursing home) in the foreseeable future, that person should be careful when considering making a gift. Without proper planning, gifting in this scenario can be very costly.
Medicaid – the government program which provides financial assistance for the high cost of nursing home care – will assess a “penalty period” for gifts made within five (5) years of the Medicaid application. In other words, asset transfers for less than fair market value (or gifts) result in a disqualification period from Medicaid benefits, otherwise known as a transfer penalty period.
When an application for Medicaid benefits is filed, government case workers meticulously review all transfers that were made during the past five (5) years to determine if an uncompensated transfer or gift has occurred. If so, a penalty period which disqualifies the applicant from receiving Medicaid benefits is imposed. The length of the penalty period imposed corresponds to the size of the gift. The larger the gift, the longer the penalty period.
The penalty period does not start until the applicant meets the medical and financial criteria for Medicaid eligibility. This means that the penalty period does not begin until the applicant’s resources have already been depleted. During the penalty period, the applicant is responsible for the entire costs of nursing home care. This is problematic for the applicant as the penalty period didn’t start until the assets were already depleted!
The average cost of nursing home care in Pennsylvania right now is $11,099.04 per month per person.
Many people believe that you can make gifts up to $15,000 per year without impacting Medicaid eligibility. Not so. This common misunderstanding confuses tax law with Medicaid law. In the Medicaid context, gifts in excess of $500 per calendar month can be assessed a penalty period.
Gifting can be a useful technique to preserve assets in the proper context and with the proper planning. It is recommended that you seek consultation and direction from a professional who understands the complexities and nuances of proper Medicaid Planning.
Our Certified Medicaid Planners at Luschas, Naparsteck, & Crane, LLP are happy to sit with you discuss the proper gifting techniques available to you. Call 570-784-4654 to schedule a consultation.