We have all heard that it is better to give than to receive. However, if you think you might someday want (or need) to apply for Medicaid long-term care benefits, then you need to be careful. Why? Because giving away money or property now can interfere with your eligibility later.
Under federal Medicaid law, if you transfer assets within five years before applying for Medicaid, you will be ineligible for a period of time (called a transfer penalty), depending on the value of the assets you transferred. Even small transfers can affect eligibility.
Warning: While federal law allows individuals to gift up to $14,000 a year (in 2016) without having to pay a gift tax, Medicaid law still treats that gift as a transfer subject to penalty.
In fact, any transfer you make, however innocent, will come under scrutiny. For example, Medicaid does not have an exception for gifts to charities. If you give money to a charity, it could affect your Medicaid eligibility down the road.
Similarly, gifts for holidays, weddings, birthdays and graduations can all cause a transfer penalty. If you buy something for a friend or relative, this could also result in a transfer penalty.
Spending a lot of cash all at once or over time could prompt the state to request documentation showing how the money was spent. If you do not have documentation showing that you received fair market value in return for a transferred asset, you could be subject to a transfer penalty.
While most transfers are penalized, certain transfers are exempt from this penalty. Even after entering a nursing home, you may transfer any asset to the following individuals without having to wait out a period of Medicaid ineligibility:
• your spouse;
• your child who is blind or permanently disabled; or
• a trust for the sole benefit of anyone under age 65 who is permanently disabled.
In addition, you may transfer your home to the following individuals (as well as to those listed above):
• your child who is under age 21;
• your child who has lived in your home for at least two years prior to your moving to a nursing home and who provided you with care that allowed you to stay at home during that time; or
• a sibling who already has an equity interest in the house and who lived there for at least a year before you moved to a nursing home.
Everyone needs a long-term care plan. How will you pay for it? Can you afford to give assets away out of generosity or do you need to salt them away in case they are needed to pay for your care?
An elder law consultation can help you learn the Medicaid rules and make plans now through lawfully authorized asset transfers. In addition or alternatively, long-term care insurance is a proven option to pursue. However, the longer you wait to investigate this insurance option, the greater the likelihood you will develop a physical or mental condition that renders you uninsurable.
Do not delay. Now is the time to evaluate your options and plan accordingly.
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