At this time of year individuals and families are preparing for the holidays and as part of this, purchasing and presenting gifts to loved ones and making donations to one’s church, synagogue, or charity. This is wonderful. However, this same wonderful generosity can punish a client when applying for Medicaid. Do not let this discourage you from making gifts or donations – just be aware of the potential consequences.
When applying for Medicaid as an in-patient in a nursing facility, any gifts made by the applicant within the previous five years will punish the applicant. More specifically, in the language of Medicaid, any transfer of assets for less than fair market value made by the person or his or her spouse within “look-back period” will render the person ineligible for nursing facility services.
EXAMPLE: Kenny (85 years of age), a lifelong Kings Park, NY resident, widower, and father of three, recently sat down with his CPA. After discussing his income tax situation it was suggested to Kenny that he might consider giving each of his kids $14,000.00 around Christmas time. It would be nice to do, he would not have to file a gift tax return, it would be consistent with his estate planning, and, as he was “slowing down,” this might serve to protect and preserve his assets if he ever needed skilled nursing care.
In March of the following year, Kenny entered a nursing home in Smithtown, NY, and applied for Medicaid. Likely result: Medicaid will impose a 3.4 month penalty – and deny Medicaid for this period of time. Using figures applicable to 2015, the penalty would be calculated as follows: Gifts to children $42,000.00 ($14,000.00 x 3) divided by the regional rate in Suffolk County $12,390.00 (in 2015) equals 3.3898 months.
EXAMPLE 2: Same facts as above, but since age 76, Kenny made equal gifts to the children every year at Christmas time in an amount equal to the annual gift tax exclusion. Now, after ten years of gifting, Kenny enters the nursing home. Result: Medicaid MAY be immediately available without any penalty. Why? Medicaid punishes applicants that make gifts within the five year “look-back period.” However, an exception to the transfer penalty rule is if assets were transferred exclusively for a purpose other than to qualify for medical assistance for nursing facility services. A consistent history of estate and gift tax planning by giving annual gifts in annual exclusion amount would likely satisfy Medicaid that the gifting was made for a purpose other than to qualify for Medicaid.
To be continued ….
Aaron E. Futterman, CPA, Esq. is a partner in the law firm of Futterman & Lanza, LLP with offices in Smithtown, NY and clients throughout Suffolk, Nassau, Queens, Brooklyn, Bronx, Richmond, New York, Westchester and Rockland Counties. He concentrates his practice to Elder Law, Medicaid Planning, Medicaid Applications, Estate Planning, Probate, Estate Taxes, and Estate Administration.