WHY YOU MIGHT WANT TO RETHINK GIFTING.
DON’T SHOOT THE MESSENGER!
Rhonda Clark
MEDICAID!
I’ve always enjoyed giving gifts. Most of us do. Watching the joy on faces from those receiving unexpected gifts is priceless. Who doesn’t enjoy giving birthday, Christmas, graduation and wedding presents. We all do it and don’t think twice. However, gift giving becomes problematic for those who don’t live their life to join the Medicaid program and find themselves disabled and maybe need nursing home care in the near future. This problem can last 5 years.
WHY SHOULD I CARE?
NURSING HOME CARE IS EXPENSIVE!
Medicaid is a program that helps people to pay for the cost of nursing home care. The average cost of care in Michigan in 2023 is $9,939 per month. This can deplete people’s life savings quickly. For a couple, it can cause devastation for a spouse that lives at home and needs protection against total impoverishment. Medicaid can provide assistance to cover the cost of nursing home care, but it is anything less than straightforward and easy to understand. It is more like a tricky web of rules and policies that are murky and difficult to follow for anyone except those who practice it daily.
Medicaid is a government welfare program based upon medical need, income, and assets. In addition to strict income and asset rules, Medicaid prohibits people from giving away their assets (anything you own e.g., money, home, car, etc.) to qualify for Medicaid. The Medicaid program has strict policies to address gifting, which it calls “divestment.” A divestment (gift) occurs when a Medicaid applicant transfers (gives away) assets within 5 years before applying for Medicaid and does not receive fair market value in return for the assets given away. (Commonly referred to as the 5-year look-back rule.) Medicaid prohibits this type of transaction and penalizes the Medicaid applicant by imposing a divestment penalty. A divestment penalty is the amount of time that the Medicaid program will not cover the cost of care in the nursing home when the person is financially eligible for Medicaid. The penalty is based upon the value of the gift.
HOW DOES THE 5-YEAR LOOK-BACK RULE FOR MEDICAID WORK?
To become Medicaid eligible, a person must apply for benefits. The Medicaid application asks if a person has “sold, given away or transferred assets within the last 60 months (5 years).” The person signs the Medicaid application “under penalties of perjury” and must fully report all gifts made within the last 5 years. All gifts made within the last 5 years (60 months) are added together to determine the total divestment amount. The total divestment amount is divided by the average cost of care ($9,939 in 2023). The resulting figure is the amount of time in days and months that the person, otherwise eligible for Medicaid, will not receive Medicaid benefits to pay their cost of care in the nursing home.
Example: If a person gives away $45,000 in 2022 and applies for Medicaid to pay for nursing home care in 2023, the penalty would be calculated as follows: $45,000 divided by $9,939 = 4.52 months or 4 months, 16 days. This means that Medicaid program would not pay for the first 4 months and 16 days after the person qualifies for Medicaid.
WATCH OUT!
- You must fully return all gifts to fix the divestment. One cent short is no good! There is no partial credit for partial returns.
- There are no exceptions based upon the size of the gift whether it is $1.00 or $10,000. The annual IRS gift exclusion is irrelevant for Medicaid purposes. A gift is a gift.
- There is no limitation on the type of asset, it could be money, or it could be adding someone to the deed to your home or car, etc.
- Under valuing a sale of an asset is a divestment. Medicaid looks at the fair market value of each asset.
- Paying family members or others to care for a person without a proper written, signed, notarized, doctor approved contract BEFORE payment is made is a divestment.
EXCEPTIONS?
- Spouses: Transfer of assets between spouses are not divestment and are not penalized.
- Blind or Disabled Children: Transfers made from a Medicaid applicant to his or her blind or disabled child (as determined by the Social Security Administration) is not a divestment.
If you think you might need Medicaid to help pay for nursing home costs in the next 5 years, stop and think before you make the gift. Medicaid is complicated. Talk to your elder law attorney first!
