Clients often call us to request that we prepare a deed gifting an interest in their home or to discuss gifting other assets, such as cash, to children or other family members. Often, clients are advised by their accountant or financial advisor to make annual gifts to their children for gift tax purposes. These types of transfers are considered gifts under the Medicaid regulations and can have negative implications should you need to enter a nursing home and want to apply for Medicaid (MassHealth) benefits to pay for your nursing home care.
While individuals are allowed to make annual gifts in certain amounts without paying gift taxes, these same gifts are not allowed by the Medicaid regulations. The gift tax laws and Medicaid regulations are two different matters and you should be sure you understand all of the implications prior to making any gifts of your assets.
Under the current Medicaid regulations, if within five years of making a gift (the "lookback period"), you need to apply for Medicaid benefits, you must disclose this gift on the application. There will then be an ineligibility period imposed during which you will be ineligible for Medicaid benefits. The ineligibility period would not begin until you were in a nursing home, medically certified to need nursing home care and your assets were reduced to $2,000 for a single individual, or $119,220 combined for a married couple.
For example, let's assume we have a single client who gifted $93,000 to her daughter on January 1, 2015. Applying today’s Medicaid regulations, she would be disqualified for Medicaid benefits for 10 months from the date she is otherwise eligible for Medicaid benefits as explained above (when she is a nursing home and her assets are reduced to $2,000). We arrived at this figure by dividing the value of the asset gifted, $93,000, by what MassHealth considers the average monthly cost of a nursing home, $9,300. This means that she would need to find other resources to pay for her care during this ineligibility period, if needed, at a rate of approximately $12,000 per month.
This client does not have sufficient other assets to cover 5 years of nursing home care (approximately $720,000) to get through the lookback period. Therefore, in order for the ineligibility period to begin, her assets would need to be reduced to $2,000 and she would need to be a resident of a nursing home. If her assets are reduced to $2,000, she obviously would not have the $120,000 (10 months x $12,000) necessary to pay for her care during the ineligibility period if she enters a nursing home within five years of the date of the gift.
Now let's assume that in this example we have a married couple. When filing for Medicaid, all assets belonging to the couple jointly and individually are counted for determining eligibility. This means that the spouse at home (community spouse) is allowed to keep $119,220 in countable assets and the spouse in the nursing home is allowed to keep $2,000 in countable assets. In this example, they would need to use all of the assets that they are allowed to keep to pay for the ineligibility period before they could apply for Medicaid benefits for the nursing home spouse. This means that the spouse at home would be left with no cash assets on which to live.
Before making any gifts of your assets, you should have a consultation with an elder law attorney who is well versed in the Medicaid regulations so that you understand all of the implications of making these gifts.