If you are reading this, then you may well be among the many people who rely heavily on the internet to learn about the law and other things. Sometimes the internet is sufficient to obtain the information you need, but sometimes it is not. You wouldn't rely on the internet to learn how to perform brain surgery, right? Well, Medicaid pre-planning should be in the same category. What could go wrong? A lot!
Take this example: Bill and Mary read all about how expensive nursing home care is and how it could wipe out their estate, leaving nothing for their children to inherit. They had sufficient income from social security and pensions to pay their normal expenses of living, but not enough to pay for nursing home care should they ever need it, so they developed their own gifting strategy (without the advice of an attorney) whereby they gave their children their entire stock portfolio, keeping only a small savings account for emergencies such as home repairs. They retained title to the house because they read that it was a non-countable asset. When Bill needed nursing home care four years later, he was approved but with a 36 month penalty period due to the gifts. Mary did not have enough cash to pay for Bill's nursing home expenses for 36 month, and their children had already liquidated the stocks they received and spent the money, so Mary had to sell the house to pay for Bill's care and move in with her daughter. The amount that Mary had to pay for Bill's care exceeded the total value of the gifts made to their children by about forty percent.
What went wrong?
Gifts Create Penalty Periods
Some people do only enough research to figure out that you have to be nearly broke to qualify for Medicaid, so when it starts becoming apparent that they are going to need long-term care, they quickly gift things to their children and/or other people.
What they failed to take into account is the five-year lookback period. On the application for Medicaid benefits you must list all gifts made within the last five years. (Even if you don't list them, they have ways of finding them, so don't try the non-disclosure strategy.) The gifts are added up and divided by a divisor that is approximately equal to the monthly Medicaid nursing home benefit, and the resulting figure is the number of months that you will need to pay for your own care out of pocket, called the "penalty period".
You Can End Up Paying More Than Twice for the Gifts
And, unless you are lucky enough to somehow convince the recipients of those past gifts to gift them back to you to pay for your care, you end up paying for those gifts twice. Even worse, the private pay rate is virtually always higher (a lot higher) than the Medicaid rate, so you end up having to pay out of pocket substantially more than the value of the gifts that you made.
You Might Have to Sell the House to Pay Through the Penalty Period
Normally the house is protected from having to be sold while you are alive and plan to return home or you have a house at home. But if you made disqualifying gifts and have no other resources to pay through the penalty period, you might have to sell the house to pay for your care or that of your spouse.
Is there a better way? Yes.
Hire an experienced elder law attorney to help you develop a sound gifting strategy. Medicaid pre-planning is a "thing" but it must be carefully thought through including all implications and possible outcomes. Hint: Outright gifts are usually a bad idea.
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