The thought of paying for nursing home care out of your own life savings can understandably cause you to panic. You may have heard rumors that you can get around Medicaid eligibility rules by signing over your home, wealth, and possessions to your children—or you might have started this process already.
Unfortunately, gifting your assets is a flawed Medicaid strategy that opens you up to penalties—and may not provide your children with a reliable safety net. The best thing you can do is plan the right way with a lawyer by your side.
Dangers of Giving Away Assets to Qualify for Medicaid
The first problem with giving your property away is that the government closely examines your spending and gift history when you apply for Medicaid. If you have gotten rid of an asset without receiving fair market value in return, you won’t necessarily be denied benefits. Instead, the government imposes a "period of ineligibility" depending on the amount of uncompensated transfers in the previous five years. This is known as the lookback period.
There’s no way the government “won’t find out” about an improper gift. You have to submit financial documentation to prove your eligibility for public benefits. For each month you could have paid for nursing home costs with your own assets, your benefits will be delayed by one month. If you have to enter a nursing home during this time, Medicaid will not cover the costs.
In most cases, creating a Medicaid asset protection trust is a much better method than giving everything away. Consider the impact of each strategy on your:
- Spouse’s needs. A Medicaid trust is irrevocable, meaning you can no longer access what’s inside. However, it allows your spouse to keep control of the assets as your successor trustee, protecting them after your passing. When you give assets or money away outright, your friends and relatives may not be able to give it back if your spouse needs it—and they’re also under no legal obligation to do so.
- Legal penalties. It’s not only a bad idea to give away assets before applying for Medicaid and fail to disclose the transfers, it’s against the law. Even if the government doesn’t notice the oversight during your lifetime, it can go after your spouse and heirs after your passing to recoup the costs it paid for your care.
- Inheritances. Handing large sums of money to relatives might not be a good idea, for a number of reasons. Medicaid will probably notice the transfer, and there’s also nothing to prevent your child from blowing the money. Even if your child is responsible and puts the money in a savings account, they could lose it to creditors, in a lawsuit, or in a divorce settlement. If the money is in a trust, you can control when it will be distributed and protect it from being used to pay court judgments.
- Tax liability. The federal government assesses taxes on large gifts. If you give away more than $15,000 a year or $11.7 million over your lifetime (in 2021), you may be hit with a gift tax. Medicaid will also treat these gifts as a transfer if you apply for Medicaid.
- Home value. If you add your children to the deed to your home, you may incur a Medicaid ineligibility period of up to five years—and they will have to pay capital gains tax on the difference between the selling price and the value of the house. If the home is sold before you pass away, your family will have to pay Medicaid the value of the home in exchange for your care. On the other hand, putting the home in an asset protection trust preserves it for your spouse and heirs.
- Donations and life events. With a trust, you can set up distributions as gifts for weddings, birthdays, holidays, and graduations without incurring transfer penalties. You can even set up one-time or recurring donations to charity without affecting your Medicaid eligibility.
Speak to an Elder Law Attorney Today
Before jeopardizing your nursing home benefits, you should have one of our New York Medicaid planning attorneys at Landskind & Ricaforte Law Group, P.C. help protect your assets before the need for care arises. Contact us today through our online form to get started.