Question:
The health of my widowed 74 year old mom is starting to decline. My sister and I understand mom must have limited assets to qualify for Medicaid. She owns an annuity and bank accounts worth about $100,000. A coworker tells me she can give us each $14,000.00 a year without Medicaid penalty. Is this right?
Answer:
Your coworker is confusing a rule dealing with income and gift tax rules with Medicaid rules – a common and financially dangerous mistake.
What your colleague refers to is an exemption under the Federal Internal Revenue Code. Under that code the first $14,000 of gifts made in a given year to an individual are exempt from gift tax. The exemption provides a means for wealthier families to distribute wealth by reducing the size of their estate taxable at death. But that exemption does not apply to situations when applying for Medicaid benefits. Families wrongly believe the annual gift tax exemption shields them from Medicaid’s transfer penalty if nursing home care is needed sometime in the future.
The opposite is true.
When an application is filed, you’re required to list all gifts and property transfers made in the five years preceding the application. The gifts are then added together to determine how long the penalty will last. In Texas, for approximately each $4000 gifted, Medicaid delays eligibility for a month. A gift of $100,000 could delay benefits for over two years. When gifts like these are made with the belief that the money is protected, the recipients spend rather than save it. If Medicaid imposes a penalty, where will the money come from to pay for your mom’s care during that time? The end result can be a terrible hardship on the entire family.
Used properly, giving away assets can be an effective Medicaid asset protection strategy. Even if you’ve already made such gifts, an Elder Law attorney experienced in Medicaid estate protection planning can guide you on the right steps to take now that protect assets and increase your chances of qualifying for Medicaid assistance.