Nursing home care for elderly or disabled patients (long-term care) costs $10,000 or more a month around here. No one wants to or hopes to go to a nursing home, but sometimes it’s necessary.
Long-term care is usually for an indefinite, permanent placement, going forward (though technically any stay more than six months can qualify).
If you are headed toward expensive long-term care in a nursing home, there are really only three ways to pay: (1) pay yourself, also called private payment; (2) pay with a private long-term care insurance policy, if you had the opportunity and foresight to buy it; or (3) pay through a public benefit program such as Medicaid or VA Aid and Attendance benefits.
Medicaid benefits are most often relevant for long-term nursing home care. Medicaid pays for almost 2/3 of all nursing home residents. However, a nursing home stay may not be your only choice. The shift toward Medicaid-paid home care instead of care in a nursing home is huge and ongoing. For home care, the same financial rules apply.
Medicaid has many restrictive rules that govern who is financially eligible, Including the “lookback period,” and penalties for gifting. Here’s what they’re all about
Medicaid’s most important rule is that you have to spend almost all your own money on your own care first before they start to pay anything for you. Rule number two, therefore, is that you’re not allowed to just give away anything of value as a gift, because then you’ve violated rule number one.
It’s not that elder law attorneys don’t help clients make gifts as part of Medicaid planning. We help clients plan and make gifts all the time – but in a planned, thoughtful, strategic, intentional way, with predictable, helpful results.
Medicaid doesn’t look back forever – only for a period of five years prior to the date of the application – the so-called “five-year lookback period.” You have to turn in your financial records, and they will review your statements, etc. looking for two things: to make sure you have disclosed all your assets, and that you haven’t made any significant gifts within the last five years.
A gift is a transfer of valuable property or rights made without receiving adequate consideration or compensation in return. Any portion that you’re not paid for is called “uncompensated value.” Gifts that are made within the lookback period can cause penalties.
You are always allowed to make some gifts, up to a maximum of $500 per month (not $500 per person to more than one recipient, just $500 total per month in gifts.)
There are exceptions to the ban. You won’t be penalized if you can show that a transfer is made with the intention to obtain fair market value, or exclusively for purposes other than to qualify for Medicaid. As a practical matter, these are often very difficult arguments to win. You can also avoid a penalty by showing undue hardship under the requirements, or if the gifted property is returned to you.
Other exceptions are often based on family relationships. You can ordinarily make any gift to a spouse. You may be permitted to gift your home and sometimes other kinds of property to a caregiver child, a disabled or blind child or a child under 21, or a sibling co-owner, under specific rules, or in trust for the sole benefit of any other disabled person. You’re always able to make gifts to a qualifying Special Needs Trust for the benefit of a disabled or special needs beneficiary.
What is the result if you do make a prohibited gift within five years before you apply? You become ineligible for Medicaid for a penalty period of ineligibility corresponding to how much longer you could have paid for yourself with that money or property if you hadn’t given it away. The uncompensated value amount is divided by the average statewide cost of nursing home care in Pennsylvania this fiscal year. Right now, the average cost of nursing home care, or the divisor amount, is $364.90 per day, $11,099.04 per month. If you made a gift of $100,000, you’d become ineligible for about nine months.
A key question is when the period of ineligibility starts to run. It generally begins when you would first otherwise be eligible for Medicaid in every other way, but for the penalty period of ineligibility caused by the gift itself. We often try to manipulate the start of the penalty period of ineligibility for strategic advantage. Note that the penalty is not limited to five years, it can go on for much longer.
The rules are actually more detailed and complicated than described here. At Marks Elder Law, we help people every day with issues like these. I invite your questions and feedback. Please let me know how I can help you and your family.