Medicaid Planning for a Single Person

As discussed earlier, many people have heard of the Federal Gift Tax provision that allows them to give away $13,000 per year without paying any gift taxes. What they do not know is that this refers to a Gift Tax exemption. It is not an absolute right.  Having heard of the exemption, they wonder, “Can’t I give my assets away?” The answer is, maybe, but only if it’s done within the strict allowances of the law.

So even though the federal Gift Tax law allows you to give away up to $13,000.00 per year without incurring tax, those gifts could result in a period of ineligibility for Medicaid for months. Still, some parents want to make gifts to their children before their life savings are gone.  This is an important point to consider, as a nursing home resident will often have needs that exceed their $2,000 personal needs amount.  If all of their funds have been spent down before obtaining Medicaid, how will those needs be met?  Next, consider the following case study:

Case Study: An Elderly Widow in a Nursing Home: 

Sally Johnson feels worn out. Four years ago her father died and for the past three years she has been caring for her aging mother.

At first, it was little things...grocery shopping, trips to the doctor, help with her medication, things like that. But as her mom's health deteriorated, Sally's burden has increased. The last six months have been brutal. That's because Sally had to move her mom to a nursing home. Mom couldn't live at home any more.

Sally thought her job would be easier once the nursing home staff took over, but it hasn't turned out that way. As the oldest daughter, Sally still feels responsible, even though technically, someone else is now responsible for Mom's care. Sally feels like she has to be there. So she visits her mom four or five days a week.

Sally is running herself ragged and Mom is running out of money. Besides the home, Mom has about $50,000 left, and at $6,500 per month for the nursing home, Sally knows Mom's money won't last long. When the money runs out, who will be there to pay for Mom's nursing home? Sure, Sally has heard Medicaid will cover the nursing home, but she's also heard Medicaid won't cover everything. What then?

When she comes to see you, Sally is quite distraught. "Is there anything else I can do?" "Yes," you tell her. There are steps she can take.

The last thing we want is for a nursing home resident to spend down to the $2,000 Medicaid limit because then they are out of money and out of options.  Assuming there is a proper power of attorney in place, Mom can still make a gift of some of the remaining $50,000 to Sally.  This will create a pool of protected funds that can be used for Mom's other needs after she obtains Medicaid eligibility, such as paying the real estate taxes on the home.  If there is not a proper power of attorney in place, the gifting still may be able to be done, but we will have to first obtain probate court authority.

Usually, at least fifty percent can be saved if not more, even after an elder moves to a nursing home.  The amount that can be saved depends upon if there have been any prior gifts, Mom's income, Mom's medical expenses, and the daily rate for the nursing home.  This will allow Sally to provide Mom the care she needs and still allow Mom to qualify for Medicaid.

Sally says, "what about the five year look back period.  I heard you can't make any gifts within five years of moving into a nursing home?" 

The look back period is a disclosure requirement.  This means that when one applies for Medicaid, you must disclose to Medicaid if there have been any gifts made within the five years of applying for Medicaid.  However, there is no law prohibiting Mom from making a gift within the five year period, even after she moves to a nursing home.  After all, it is her property, she can do want she wants with it.  It is true that Medicaid can apply a penalty if Mom makes a gift.   The penalty is simply that Medicaid will not pay for Mom's care for a period of time.  That is why the entire $50,000 cannot be saved; some of these funds, along with Mom's income, will need to be used to pay for her care during the penalty period.  It is the elder law attorney's job to apply the laws so that Mom can make the maximum gift with the minimal penalty.  The portion of the funds that Mom does not gift will be structured to pay the nursing home during the penalty period.  That way the nursing home will be paid in full.  After the expiration of the penalty period, Medicaid will start paying and at least fifty percent of Mom's assets have been protected.

You explain to Sally that you have given her the "short version" and that this type of planning must be handled in a very specific manner, but when done properly, it can be used to solve Mom's dilemma.

Sally is relieved. You have shown her how she can make sure Mom does not become out of money and out of options.