Mabel’s children were concerned that Mabel would need long-term nursing home care in the near future. It was the holidays, and Mabel always got a lot of joy out of generosity. But her children had heard that people in Mabel’s circumstances should not give gifts, especially when applying for Medicaid.
The concern is real. For Medicaid to cover the huge expense of nursing home care, Mabel would have to show that she owned nothing more than around $2,000. Moreover, she must also demonstrate that she had not given away money or assets over the prior five years (2.5 years in California). That Medicaid rule—the “look-back period” or the “transfer penalty”—would charge Mabel dearly for her generosity. Depending on the size and number of the gifts, calculated at their fair market value, the penalty could be substantial.
Many wrongly think that there is no penalty for gifts up to around $15,000 annually. That misunderstanding confuses gift tax law with Medicaid law (and it also misstates tax law, but that’s another subject). In the Medicaid context, gifts of any amount given during the look-back period can be penalized. Medicaid planning should consider these strict rules, which are different from federal law concerning gift taxes.
There are exceptions. These include gifts to spouses, also known as the community spouse, and gifts to siblings under certain circumstances, disabled children, and children who are caregivers and who 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 of mistakes can impact Medicaid eligibility severely. There are a number of options to protect assets and still qualify for Medicaid benefits, but these options must be weighed with great care. This is why it’s best to consult elder law attorneys who, like us, are qualified by experience and expertise in Medicaid law.
Look Back Period and Penalties
Gift-giving without adherence to Medicaid rules can lead to severe penalties, primarily impacting eligibility periods. If gifts are made during the Medicaid look-back period—currently five years—the Medicaid applicant might face a delay in receiving benefits, calculated based on the total amount gifted at fair market value.
This penalty period starts when the individual applies for Medicaid, potentially causing significant financial strain as they await eligibility. It’s crucial for Medicaid applicants to consult with a knowledgeable elder law attorney to understand Medicaid ineligibility and navigate these regulations, ensuring that their actions today do not jeopardize future Medicaid coverage.
There is one harmless deception Mabel’s children might consider to keep Mabel happy and still satisfy the Medicaid rules. The children might help Mabel fill out checks for all the gifts she’d like to give, together with a greeting card for each gift. Everybody could thank Mabel, tear up the check later, and tell her what they “bought” with that amount. It may be that that little device would be worth it, so Mabel could enjoy the holidays too. This kind of simulated gift does not affect Medicaid eligibility since no assets are actually transferred, and no gift tax return is required.
Otherwise, the sooner you consult a qualified elder law attorney, the more other options may be available. If we can be of assistance, please don’t hesitate to contact us at 859-474-5508.
