Medicaid Eligibility: Elderly Who Transfer Assets at Risk
What do the following people have in common? {a} a woman who helps her granddaughter by paying $40,000 of her college tuition {b} a man who sells his home and donates 10% of the proceeds to his local church {c} a caring sister who gives $20,000 of her savings to help her needy sister stay in her home and {d} a widower who sends money to his daughter, a single mother, with two underage children, who is out of work due to an automobile accident. Answer: Each of them are at risk of being denied Medicaid eligibility if he or she is admitted to a nursing home within five years of making the gift.
Budget Reconciliation Act of 2005
On February 8, 2006 President Bush signed the Budget Reconciliation Act of 2005. The legislation changes several of the Medicaid rules.
The most significant change has to do with the manner in which the State will calculate the ineligibility period when the applicant has transferred assets for less than value. Gifts made prior to February 8 will result in a penalty period that will begin on the first day of the month in which the gift is made. So, if a single parent gifted $100,000 to her child on February 7, 2006 it would result in a 15 month penalty ranging from February 1, 2006 to April 30, 2007. If that parent had made the same gift on February 8, 2006, the penalty period would not begin until the parent entered a nursing home and was otherwise eligible for Medicaid benefits but for the penalty, which in Maryland means that she had spent all of her assets except for $2500. The Act also increased the look back period from three to five years for all transfers. Therefore, if the parent who gifted on February 8 goes in a nursing home prior to January 31, 2011, she will not receive assistance from the State under the Medicaid program until 15 months after her admission. The logical question is if the applicant is indigent and is faced with a penalty that renders her ineligible for government subsidization of nursing home care, who will pay?
The Statute does provide for hardship waivers where eviction of the nursing home resident would jeopardize health or life. But no one really knows how these waivers will work, particularly if the indigence resulted from gifting assets. Some critics of the Legislation have dubbed it the “Nursing Home Bankruptcy Act,” speculating that the nursing homes will take a financial hit. It is more likely that the nursing homes will screen applications for admission much more carefully, refusing to admit anyone who has no funds and who is ineligible for Medicaid due to gifting. So, it is vitally important that gifting be done only after diligent consideration of the risks associated with making such transfers.
Proper Gifting
It is, of course, best to make transfers at a younger age simply because the chance of making it through the five year look back period is better. If you are healthy, document it by seeing your physician at or around the time in which the transfer is made. Only transfers made for the purpose of gaining Medicaid eligibility will disqualify the donor. For example, if a gift is being made in conjunction with tax planning to reduce estate or capital gains taxes, ask the consultant to provide written instructions so that you may argue that the transfers were being made pursuant to the advice of your tax consultant. Remember, that the burden will be on you to prove that the gift was not made to receive Medicaid.
Even if a gift were made for Medicaid purposes, there are certain exceptions to the rule that such a gift results in a penalty. For example, there is no penalty when one spouse gifts to the other spouse. Neither is there a penalty when a parent gifts the home to a child who has lived with the parent for at least two years prior to the nursing home admission and who has provided a level of care which has kept the parent out of a nursing home during the two year period. No penalty is imposed where a parent gifts the home to a disabled child. In a case where two siblings hold title to their home together, there is no penalty if the sibling entering the nursing home transfers her interest to the other.
Long-Term Care Insurance
If you can afford and qualify for long term care insurance, consider purchasing a policy. According to one study, for every 1000 people in the United States, 7 will actually incur damage to their home which would be covered under their homeowner’s policy, 40 will be involved in an automobile accident and nearly 500 will require long term care. Do not rely solely on the advice of the insurance person selling you the policy. Seek advice from your attorney or accountant who has no financial interest in whether you purchase the policy under consideration. Ask the salesperson to provide you with a history of premium rate increases imposed by the particular company underwriting the policy. Make sure that the policy covers not only nursing home care, but assisted living facilities and in home health care personnel.
The federal government is clearly attempting to shift the paradigm from government subsidies for nursing home care to private financing. Toward that end, the government has encouraged people to purchase long term care insurance by providing certain tax advantages. Of course, long term care insurance is not the panacea the industry represents it to be. Many people do not qualify and/or cannot afford it. For those people, Medicaid eligibility can only be achieved by spending down their own funds. The chilling effect the new rules will have on gifting is intended to facilitate the conversion from public funding to private funding. The Legislation casts a wide net replete with traps for the unwary.