Many older adults worry that if they ever need long-term care either at home or in a care facility, the cost will bankrupt them. The concern is justified. According to a recent survey paid in-home care costs average $59,488 a year in Pennsylvania (based on 44 hours per week). And a semi-private room in a nursing home costs $124,841 a year
For more information on the cost of elder care see my recent article What is Long-Term Care and What Does it Cost?
Unfortunately, the risk that we will need expensive long-term care as we age is high; And those costs are not generally covered by Medicare or private insurance.
There is a government program called Medicaid that can pay for long-term care but only after the applicant has spent down their income and assets. The prospect of losing your life savings is real.
As a result of Medicaid’s spend-down requirements many seniors think about gifting their cash or property away to their children before everything is gone.
Making gifts to your children can make sense, but also can have complicated tax and Medicaid implications. One common area of misunderstanding is that people often confuse Medicaid rules with the IRS rules regarding gifting.
Gifts can be a problem if you want to qualify for financial help with the cost of your care. Medicaid rules specify that if you have given money or property away within 5 years of applying for Medicaid to pay for your long-term care this will make you ineligible for benefits for a period of time (For more on this topic see, The Infamous Medicaid Look Back Rule… Why Does it Matter and What Does it Mean?).
In addition, in Pennsylvania, if you do not qualify for Medicaid and have given your assets away your nursing home and other health care providers may be able to sue your children for the cost of your care. (See: PA Ruling: Son must pay mother’s nursing home bill). So, if you are going to give things away, you need to understand the impact of those gifts on your ability to qualify for Medicaid.
Many people have heard that you can give away a certain amount each year tax free. They may have heard that the exempt amount is $10,000 or $15,000. (Actually, it is $16,000 per recipient in 2022). But this is a tax rule, not a Medicaid rule. And it is the Medicaid rules not tax rules that determine whether you will qualify for financial assistance with the cos of your care.
Pennsylvania Medicaid does not permit you to give away more than $500 in any month without the gift potentially affecting your eligibility for Medicaid benefits. However, the Medicaid rules contain a number of exemptions and planning opportunities.
In general, gifts made within 5 years of applying for Medicaid long-term care benefits are penalized by making you ineligible for benefits. The penalty period depends on the value of the gift. It may be anywhere from a few months to years depending on the value of the gift. The rules are complicated, and it is critical for families to get the best possible advice from an experienced lawyer who is working for you (and not from someone working for a nursing home). Mistakes can be very costly.
Although procrastination is your enemy and early planning is almost always best, most people can be assisted with preserving a significant amount of assets even if a family member is already receiving long-term care at home or in a facility.
The confusion about Medicaid and tax rules is one of a number of common misconceptions about paying for long term care. For more information on this topic see Tammy Weber’s series of articles:
If you are worried about elder care costs, or thinking about making gifts to your children, the best time to start the conversation is today. Be sure to include an elder law and Medicaid expert in that conversation. If you live in Pennsylvania, you can learn about the Medicaid rules and your options from certified elder law attorneys at the law firm: Marshall, Parker, and Weber.