How the Grinch (Medicaid) Stole Christmas (and Hanukkah and birthdays and weddings and everything else!)

Tis the season for gift-giving!

One of a parent’s (or grandparent’s) greatest sources of pleasure is to make a gift to a child or grandchild. Whether the gifts are holiday gifts or wedding or birthday gifts, “helping out” is something seniors take great pride in. Even if their world is growing smaller due to health concerns, they can still feel joy in making gifts to family and friends.

So it comes as a nasty surprise to many seniors when they apply for Medicaid benefits that these gifts they have made to everyone for the last 60 months have to be returned in order for Medicaid benefits to begin!

You read that right.

Medicaid penalizes all gifts, whether large or small, and regardless of purpose. It doesn’t matter to Medicaid that someone’s granddaughter got married or graduated from medical school. If a Medicaid applicant has made a gift to anyone within the last five years, they have a simple choice to make- either retrieve the gift they made (and then spend the money on their nursing-home care) or let Medicaid’s transfer penalty run its course.

What is a transfer penalty, you might be asking? It is a penalty imposed by Medicaid on when a person’s Medicaid benefits will begin. Medicaid might find transfers totaling $60,000 over a five-year period. They would then divide that amount by the “average monthly cost of care” in effect in Alabama, which is $6,083. The resulting number is 9.8. Medicaid will then tell the applicant that her benefits will begin 10 months from the day she is approved for Medicaid. This means that the family must provide for her care for the next 9 months and the average nursing-home bill is $8,000 per month. It is therefore almost always better to pay the penalty than to pay full retail for care unless you do not think the applicant will live 10 months.

I read where people can give away $15,000 per year to anyone they want to and it is a tax-neutral event.” This is an IRS rule, not a Medicaid rule. They do not share rulebooks. Medicaid will assess a penalty on these transfers just like any other transfer.

So the unfortunate lesson to be learned is that seniors need to rein-in their gift-giving at least five years before they might have to apply for Medicaid benefits. When is that you might ask? That is the question. No one knows what they will be doing tomorrow, much less 60 months from now. The sooner you get out of the habit the better though. If, on the other hand, you still want to provide for your loved ones, there are ways to do so, but you would need to meet with an Elder Law attorney (like us) to discuss your options. If so, give us a call. There is no charge to discuss your wishes.

Happy Holidays!