I have given quite a few seminars over the past five years on estate planning and have answered many, many questions. I have also helped many clients and provided all the information I can so those clients can make a knowledgeable decision regarding their estate plan. So, I want to spend the next few posts going over questions I run into with estate planning to help spread more knowledge to the people of Altus and the surrounding areas of southwest Oklahoma (and the world).
Common Question: (This is tied into the last post, but focuses more on the Elderlaw side.) My mom is getting advanced dementia and we think we will have to put her in a nursing home. She doesn’t have a lot of things, but we heard she will qualify for Medicaid if she has less than $2,000 in assets. We also know, because we heard it at the coffee shop, that she could give each of us kids and the grandkids $10,000 a year. If she does that, she would be below $2,000 and would get government assistance, right?
Short (very, very short) Answer: There are misconceptions with this answer the same as in the previous column; namely, you are trying to combine two very distinct areas of law into one simplified version.
First, the gift tax annual exclusion is only that, exclusion from reporting gifts that may subject to gift tax each year. It does not affect the rules related to qualification for need-based governmental assistance.
When someone is applying for Medicaid, they have to meet three qualifications: 1. Have a medical need, 2. Meet income limitations, and 3. Meet resource limitations. In order to prevent someone from immediately qualifying, the 2005 Deficit Reduction Act (DRA) imposed a 60 month look-back period for any transfer given without adequate consideration. If there is transfer without adequate consideration during the 60 months prior to application for Medicaid, then the government imposes a delay based on the amount given away (for OK currently one day without assistance for every $134.50 transferred).
Under this look-back rule, Mom would lose about two months of nursing home assistance for every $8,000 given away and it would be up to her or the donees to pay for that assistance, if needed. In a nutshell, the divisions that administer Medicaid do not care that the IRS give a tax break for gifts, because they are only concerned about ensuring proper applicants for Medicaid get qualified.