Pitfalls to Avoid When Making Lifetime Gifts to Achieve Medicaid Eligibility

Long-term care is prohibitively expensive for most American families. Whether you are seeking residence in a nursing home or obtaining at-home care for yourself or an elderly loved one, the costs are in the thousands every month. Medicaid offers individuals and families the ability to obtain long-term care without going bankrupt. Maintaining eligibility for Medicaid while retaining assets and income above the poverty line is a delicate balance, however. Making lifetime or “inter vivos” gifts (transfer of assets while alive) before applying is one way to ensure eligibility, but there are risks. Read on for tips on what to avoid when making lifetime gifts for the purposes of Medicaid eligibility, and call a knowledgeable West Palm Beach Medicaid planning and elder law attorney if you have any questions.

The Annual Gift Tax Exemption is Not About Medicaid

Many people hear that there is an annual gift tax exclusion and confuse that exclusion with Medicaid eligibility. The annual federal gift tax exclusion allows you to give away up to $15,000 (as of 2020) each year without paying tax on those gifts or affecting your lifetime exemption for gifts. That $15,000 figure has nothing to do with Medicaid eligibility–it does not mean, for example, that you can give away up to $15,000 in assets per year in order to get closer to Medicaid eligibility.

The Medicaid Lookback Period

When you apply for Medicaid, the government will review your finances for the previous 60 months (five years). Any qualifying assets that were given away or sold for less than fair market value will be considered a “violation” of the look-back. For every violation, there will be a period of Medicaid ineligibility, the duration of which depends on the value transferred. If you are planning to give away all of your assets to get down to the Medicaid allowance for assets, you will need to gift those assets more than five years before you plan to apply for Medicaid.

Medicaid does not care about the purpose behind the transfer. Even if you give money to charity, if your charitable donation falls within the lookback period, your eligibility for Medicaid will be affected. The same applies to holiday gifts and other transfers, even if made without consideration for Medicaid eligibility. When you are considering Medicaid, pay careful attention to all of your financial decisions.

Exempt Transfers

Most transfers made during the lookback period are penalized. There are, however, categories of transfers that are exempt from the Medicaid calculation. Regardless of when you make the transfer, you will not be penalized for transferring assets to:

• Your spouse
• A trust for the sole benefit of a permanently disabled child
• A trust for the sole benefit of anyone under age 65 who is permanently disabled

Additionally, transferring your home may be exempt from the lookback, depending on the recipient. You can transfer your home to a child under age 21, a child who is blind or disabled, a “caretaker child” who lived with and cared for you in lieu of nursing care for a sufficient period of time, or a sibling who already lived in the home and has an equity interest.

Before making any asset transfers, consult an elder law and estate planning attorney to ensure that you do not inadvertently set yourself up for Medicaid failure.

Get Help Planning For Your Future from a Dedicated Estate Planning and Elder Law Attorney

A Medicaid planning attorney at Shalloway & Shalloway can help protect your family, creating an estate and special needs plan tailored to your needs and circumstances. We will evaluate your circumstances and those of your family to determine the best type of will, trust, and other legal documents and mechanisms available to benefit your family the most. Contact the seasoned and effective West Palm Beach estate planning attorneys of Shalloway & Shalloway at 561-686-6200.