Medicaid is a complicated program and process to go through. It’s not usual for it to take multiple months and in some counties, provide account statements going back five years.
If a gift or other transfer was made within five years of filing for Medicaid, it’ll only complicate the process further. Medicaid treats certain transfers (known as “divestment”) as if money or an asset was given away and isn’t available to pay for a person’s care. The Medicaid rules impose a penalty on the person who is applying. In 2023, the penalty is roughly equal to one month of care for every $10,000 transferred. In other words, each $10,000 that’s transferred or given away, the Medicaid applicant will need to pay for one month of nursing home care. Also, this penalty starts when the applicant only has $2,000 or less in the bank. Regardless of these financial circumstances, the nursing home will expect payment during the penalty period. This will require the family to step in for payment or if the applicant has a house, the nursing home may put a lien on it for the unpaid balance.
These are the most surprising and concerning issues to know about gifts, divestment, and Medicaid:
- Adding a joint owner. It’s common and understandable for someone to add a family member as a joint owner on an asset (like putting a child on the deed to a house or a second name on an investment account). This is a simple way of avoiding probate court upon the death of the original owner. However, Medicaid treats adding a joint owner on certain assets like real estate and investment accounts as divestment. This will result in an uncovered nursing home bill for a certain period of time.
- Gifting less than $17,000/year. It’s a common belief that if a modest amount is given away each year to family members, these gifts don’t count under the Medicaid program. Unfortunately, the Medicaid rules treat “all” gifts regardless of their amount as divestment. This is different than the gift tax which allows for an annual amount ($17,000 in 2023) to be given away with no tax liability or impact on the donor’s lifetime exemption amount. Under the Medicaid rules however, gifts of any amount count as divestment and can create significant financial problems. Because Medicaid has a five-year look back period, all of these gifts will added up to determine the total divestment penalty and how long a period of time the nursing home will expect payment.
- Making non-compliant caregiver payments. It’s not unusual for a child to care for a parent and in doing so, stop working entirely or significantly cut back on employment. In these situations, the parent will often and logically want to pay that child for providing this care. The problem with this arrangement is that these payments are treated as divestment if they’re not done in a Medicaid-compliant way. Medicaid has very strict and technical rules for what constitutes a “legal” caregiver contract. Also, this caregiver contract and related planning needs to be in place “before” the first payment is made. If payments are started before a Medicaid compliant caregiver agreement is signed, they’ll be treated as divestment and result in an uncovered nursing home bill.
