GIVE IT ALL AWAY!
By Tim Barkley. May 2014.
Mom and Susan flanked the lawyer, who addressed Mom: “If I recall correctly, Susan and I had discussed making sure you qualify for Medicaid by giving investments to the kids. Is that what you want to talk about?”
Susan assented, “Mom and I talked, and she agreed that the nursing home shouldn’t have everything. She said she and Dad had worked hard to get what they have, and she wants it to go to us kids.”
The lawyer looked at Mom, who also nodded.
“I just want to be sure we’re all on the same page,” said the attorney. “If you go into a nursing home, the bill has to be paid. Around here, it’s anywhere from six to eight thousand dollars per month. Susan said your income right now is about $4,400 per month, and that if you rented your house, you could increase that to about $6,000 per month. Is that about right?”
Mom looked at Susan, who nodded.
The attorney continued, “That means that you can pay the cost of a nursing home stay out of income, pretty much. There are other costs that might need to be paid, such as consumable supplies, but the bulk of the cost can come from your monthly cash flow.
“Susan seemed worried that if the cost of nursing home care increased more than rents and your other income, you could find yourself having to spend down savings and sell investments to pay for the cost of care.
“One of the ways to pay for care is to make sure you qualify for Medicaid. Medicaid is a medical welfare program that pays for nursing home costs for the poor.
“Medicaid isn’t about the government paying for the costs of care so you can make your kids rich. That’s why Medicaid will refuse to pay for your care if you have made gifts to your children for the purpose of qualifying for Medicaid. The application for Medicaid requires that you disclose any asset transfers made within the past five years.
“Not every gift is presumed to be for the purpose of qualifying for Medicaid. For example, if you have always paid your son’s car payment or mortgage, then the past gifts shouldn’t be a problem, but you’ll have to stop giving the money when you apply for Medicaid.
“The rule is that transfers create a period of disqualification computed by a fraction. The numerator is the amount of all transfers for the five years prior to the date of application. The denominator is the imputed monthly cost of care, currently $7,000.
“So, if you gave away a $140,000 house to your children in the five years before the month of application, you would be disqualified from Medicaid for 20 months, starting on the date you would otherwise qualify for Medicaid but for the gift – not on the date of the gift, but on the date you would otherwise qualify, usually the date of application. The disqualification is prospective.
“The disqualification can be undone if the gift is given back. One of my clients gave their house to their kids, but when the parents had to apply for Medicaid, the kids gave the house back. The parents couldn’t apply until the house was sold and the proceeds spent on the cost of care, but there was no disqualification.”
Mom had been following the discussion closely. “What happens if the kids sell the house and spend the money?”
“That can be the worst of all worlds,” responded the attorney. “Let’s say the kids never would sell the house voluntarily, but one of them loses a job and can’t pay bills, or gets divorced. The creditors or the ex-spouse can try to force the sale of the house so they can get paid. Then the kids can’t give the house back, but you’re still disqualified.”
“I can see how the kids might like this,” continued Mom, “and I’d rather have the kids have our money than the nursing home, but it sounds risky.”
“It can be,” agreed the lawyer. “It’s up to you. And if you don’t need Medicaid for five years, under current law, the transfers would never show up on the application. Of course, the law can change and that five year period could get longer – it used to be three years – but under current law, after five years you’d be free to apply for Medicaid.”
Mom nodded, and prepared to rise from the table. “I’ll think about it and talk to the kids. I need to figure out what’s best.”
“It’s your decision,” agreed the lawyer. “Let me know what you think is best for you and your family.”
Attorney Tim Barkley
The Tim Barkley Law Offices
One Park Avenue
P.O. Box 1136
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