Without proper legal and financial advice, families sometimes take actions that seem innocent enough at the time, but which later may cause the family all sorts of grief. Perhaps the most common error is when a parent or grandparent makes gifts to a younger family member without considering the impact such gifts will have on the donor’s potential Medicaid eligibility. Many people have at least a vague understanding that they are “allowed” to make annual “tax free” gifts of up to $13,000 per beneficiary. Such gifts, however, may prevent the donor from being eligible for nursing home Medicaid benefits if such gifts are made within five years prior to the donor applying for Medicaid. As a general rule, gifts made within the five year “look back” period from the date a Medicaid application is filed will create a Medicaid “penalty period” based on the following formula: the amount of total gifts during the look back period, divided by the “Regional Rate” for private pay nursing home care established each year by the New York State Department of Health. For 2011, the Regional Rate for the Northern Metropolitan Region is $10,105 per month.
The potentially dire consequences of this Medicaid penalty formula can be seen in the following example: assume that in 2010 an Orange County resident in declining health made gifts of $50,000 apiece to each of her two children. Soon thereafter the mother entered a nursing home and spent her remaining resources to pay for her long-term care. By July 2011 the mother had “spent down” to the Medicaid eligibility limit of $13,800, and the children were advised by the nursing home to file a Medicaid application on their mother’s behalf. Based on these facts, mom would be approved for Medicaid, but with a catch: the $100,000 in gifts made during the look back period would result in a period of Medicaid ineligibility for 9.9 months ($100,000 divided by $10,105). Mom would be responsible to pay the ten months of nursing home expense during the penalty period, but without any means to pay it! Since the nursing home will surely not want to absorb that cost, it may decide to try to evict mom from the home and/or file a lawsuit against mom and the children to recover the gifted funds, typically on a theory of “fraudulent conveyance.”
While the family may contend that such gifts were for a purpose other than to qualify for Medicaid, the legal presumption is that all gifts within five years of the Medicaid application filing are subject to a Medicaid waiting period. The law puts the onus on the donor to prove – usually at an administrative “fair hearing” – that the gifts were made, for example, to help a child in financial difficulty, or as part of an annual gifting program. If such arguments are unsuccessful, then the gifts, if not returned to the parent or grandparent, may leave the senior unable to pay for needed long-term care.