What’s the biggest worries that older people have? Being in poor health and running out of money. Those two often go hand-in-hand. Chronic health conditions can put a strain on family finances. Too often people are confronted with the potential of high long term care costs and depletion of assets. Some individuals believe giving money to their children or other relatives or putting them on the title to property is a way to protect assets. However, if the individual then has to apply for Medicaid to pay for long term care, those prior actions could cause very real problems in getting approved for coverage. Because of the skyrocketing cost of long term care, asset transfer is not just a concern for the “poor” older population because more and more Medicaid has to be utilized by typical middle class families. Medicaid is a program that many people end up having to apply for due to the financial drain caused by the high costs of long term care.
With Medicaid, one big issue is the “lookback period.” When a person applies for Medicaid, the Medicaid caseworker will want to know if assets were transferred during the 5 year period before the application was filed. If yes and fair market value wasn’t received in return, it will probably be considered an improper transfer (unless an exception applies). Returning the amount transferred to the applicant negates it, but often that is not possible. For example, a parent gives money to a child and the child spends it. An improper transfer will cause a delay in coverage for the applicant. The larger the improper transfer, the longer the delay in Medicaid coverage—days, months or years depending on the amount of the improper transfer. That usually translates into big out-of-pocket costs to the applicant or his/her.
Most people know vaguely about some law that says they can give away $14,000. That’s an IRS tax rule. A person can give up to $14,000 per year per individual without having to file a federal gift tax return. The Medicaid Program, however, doesn’t care about that rule. If you give money away it’s probably an improper transfer; the burden is on the applicant to prove it’s not.
Some parents add their child(ren) on the title to their real property or deed the property completely over to the child(ren). They think that doing so will make sure that no one gets that property but the child. Again, that is most likely a big problem if the parent has to apply for Medicaid within 5 years. Why? The child(ren) received an interest in real property and didn’t pay fair market value for it.
Planning for long term care and the preservation of assets can and should be done. However, when and how to transfer assets are critical issues if Medicaid could be in the picture. There are many rules and caveats when it comes to Medicaid eligibility; not following them can have critical consequences. Planning should be done in consultation with an elder law attorney. The last thing you want is to jeopardize the ability to obtain Medicaid because of a transfer that should have been avoided or done in a different manner.
Elizabeth P. Allen is the firm’s elder law attorney. She can assist you with your long term care and Medicaid planning needs.