Giving can be a terrible decision to make
Whether it is the holidays or not, gifting away money or “things” is very often something that people start doing after retirement. That being said, giving gifts can cause problems in ways we don’t realize, especially when someone needs care at home, assisted living or nursing home care.
To start. one of the things we hear most often from people is, “Should we just take all the money out of mom’s name and put it in our name so we can protect the money in case she needs Medicaid? I know someone who did it and they said it was fine.”
The answer to this question is, simply, no. Here’s why:
To meet the asset eligibility requirements to qualify for Medicaid assistance for nursing home care, the MI Choice Waiver (MI Choice) program, or PACE (Program of All-Inclusive Care for the Elderly), many people need to dispose of their assets until their countable assets are not more than the allowable amount.
“Gifts can, and will, be penalized.
This disposal of assets is sometimes accomplished by making divestments, what we might consider, normally, to be gifts. When gifts are given under certain circumstances, a penalty for giving that gift results, and the person whose money was given will be ineligible for Medicaid benefits for a certain amount of time.
Here are some examples of gifting that may/will result in a penalty if given within 60 months of receiving Medicaid benefits:
• Giving money to your grandchildren/children (or anyone except your spouse) for college, a wedding, a new roof or anything, really;
• Paying your family to help care for you without a specific Medicaid-compliant contract for that care (or paying their bills for them while they are caring for you);
• Making your child or other non-spouse a joint owner on your house or other non-cash asset;
• Giving your car to your kids, grandchildren or anyone except your spouse; or
• Selling property of any kind for less than fair market value – so, for example, you cannot sell your car that has a “blue book” value of $6,000 for $1,500.
What is the penalty?
If you need benefits within 60 months of gifting away money or assets, you will receive a penalty based on the amount you gave away. The “penalty” is that you will be ineligible to receive benefits for a certain amount of time.
This changes slightly every year, but the end result is that the more you give away, the more time you will be ineligible to receive benefits – meaning that you will not only not have the money you gave away, but you won’t be able to receive benefits to pay for your care.
If you are the child or grandchild receiving the gifts, be aware that if you don’t give them back in their entirety, your loved one may end up in a black hole where they don’t have money to pay for care and they can’t get benefits, either.
If you’ve spent all your money on care and need benefits so that you may continue to receive the care you need, you have to follow the rules. And the rules say that if you give away your money, you won’t qualify for benefits.
So, while you are free to make your own choices, you will also have to accept the consequences of those choices.
IRS rules on gifting
The IRS says you can give away $14,000 per person, per year. That’s still OK, right?
Once again, the answer simply is no.
This is a very common misconception. The $14K per person, per year is an IRS Gift Tax rule, not a rule related to care benefits and Medicaid. These are two completely separate laws. Therefore, the rules that make something OK for one law do not make it OK for benefits rules.
And those in charge will know. The people that administer this program have seen it all, and they know your tricks.
If you’ve given away a bunch of money or assets and can’t specifically account for how they were spent, you’ll receive a penalty automatically.
The thing is, by applying for benefits, you must allow access to your account and financial information. The government workers are trained in finding inconsistencies and holes where money should be. So the likelihood of them finding out is higher than you may think.
Even worse, if you’ve given the money away and try to lie or simply fail to tell the government on an application for benefits about assets or gifts, you may be criminally prosecuted, and it has been done. In a nutshell: it simply is not worth it.
What can I do?
Finally, the good news. Yes, you have options. There are many options that a good, qualified elder law attorney can provide to you that will save money, save hassle and avoid the penalties and mistakes that so often happen.
There are options allowed by law to preserve assets that are not very well known: special trusts, Medicaid-compliant annuities, special promissory notes, care contracts, exempt transfers and more.
What is right for you and your family, however, is different in each situation. Additionally, it needs to be made clear: only an attorney that specializes in this area of the law is going to be able to provide you with your entire range of options. Non-legal persons, no matter how well-meaning, simply cannot do what an attorney can do for you.
There are things you can do even if you’ve already given your money away. There is a possibility that there is a solution, even if you can’t get the money back. Once again, however, this is very specific to your situation and is different for everyone. The best thing to do is consult with a qualified elder law attorney.
Many children with power of attorney wonder if they can plan for their loved one. Maybe. The biggest problem here is, even with the power of attorney, do you have authority to plan?
When a person is incompetent and needs to be represented by another, there are two things that may happen: either they are going to be covered under a durable power of attorney or they will have to seek court authority through a conservatorship.
Just because you have a power of attorney document, though, does not mean that you have authority to plan. In Michigan, there are special laws that have to be followed in the power of attorney document for this to be allowed.
We frequently see documents that lack this authority for (some even specifically prohibit) the power of attorney to gift. While we don’t want you to gift on your own, there are proper and legal gifting strategies – but only if you have the authority to do it. The best solution is to have your power of attorney reviewed by an elder law attorney to ensure it is legally compliant for planning purposes.
Nicole Wipp owns Family & Aging Law Center in Milford. Call 248-278-1511 or visit www.miestatelawyer.com for more information.