Medicaid is a welfare program for poor people who cannot afford to pay for their medical care. With the average nursing home in Ohio costing over $6,000 a month, most people will become poor quickly if long term care is needed. If the person needing Medicaid is single, but has trusted family members, a split gift plan may be a good option to protect some assets while still qualifying for Medicaid.
In order to qualify for Medicaid, the state looks at a person’s medical needs, and financial ability to pay for care. If one requires more medical care than her income can cover, then Medicaid looks at her assets to see what she could sell to pay for her care. In order to qualify for Medicaid, countable assets must be spent down to $1,500 or less. When someone has countable assets in excess of $1,500, she needs to deplete those extra assets before qualifying for Medicaid. There are only two ways to get rid of money- spend it, or give it away.
Gifting and Medicaid
The Medicaid world is made up of black, white and all the shades of gray in between. Spending money on medical care until there is no more money is in the white. Medicaid fraud is illegal and is clearly in the black. Other things fall in the gray areas, including gifting.
If you have made any gifts within the last five years (sixty months), the presumption is that these gifts were made with the intent to qualify for Medicaid. You can try to rebut this presumption, but it is important to realize that making gifts may affect your Medicaid eligibility.
To be eligible for Medicaid, you must establish that you have medical needs exceeding your income and less than $1,500 in countable assets. After you are otherwise qualified, you will then be asked if you have made any gifts within the last five years.
If you have made gifts in the past five years, Medicaid will approve “Restricted Medicaid.” This means that Medicaid will cover medical expenses, but NOT care in a Nursing Home, Assisted Living Facility or Home Waiver program during a “penalty period”. The length of the penalty period is based on the amount of the gift. Until the penalty period passes, you are required to find another way to pay for your care.
A split gift plan involves part of the gift being returned to pay for care during the penalty period. With the proper plan, usually about half of the assets can be saved. This depends on the client’s income and cost of care.
Calculating the Penalty Period
The Department of Job and Family Services will “look-back” on any gifts the client has made within the past sixty months (five years) to determine if there is a penalty period. This penalty period is measured by the number of months the client could have paid for care had she kept the money instead of giving it away. Since the average cost of care in Ohio is $6,114 per month, the penalty period is determined by dividing the total amount of the gifts by $6,114.
Let’s say that the client made a $75,000 gift within the five year look-back period to her son. The penalty period assigned would be a little over a year. ($75,000 ÷ $6,114 = 12.26 months) During that year, Medicaid would not pay for the client’s Nursing Home, Assisted Living Facility, or Home Care Providers. She would need to find some other way to pay for this care.
The date that the penalty begins is the month in which the client is “otherwise qualified” for Medicaid. This means that the penalty period will not begin until after the client’s remaining assets are reduced to $1,500 and she has made a Medicaid application.
Curing the Gift
Suppose the client exhausts her assets and qualifies for Medicaid. However, because she made the $75,000 gift to her son, she now faces the 12 month period during which Medicaid will not pay for her nursing home care. She can use her income to pay for care, but she receives only $3,500 per month and the nursing home costs $6,000. It will not cover all of her costs.
The solution is to have her son begin returning part of the money given to pay for her care. Her care costs $6,000, minus her income. Her son will need to return about $2,500 a month. At the end of nine months, about $22,500 of the gift will have been completely returned. The client can then notify Medicaid and ask that they recalculate the penalty period based on the remaining $52,500 gift. The penalty on $52,500 is only about 8½ months. ($52,500 ÷ $6,114 = 8.58) Since it now has been nine months since the penalty began, the client’s penalty period on the gift has now passed. Medicaid will start paying for the client’s care.
The remaining $52,500 that was not returned is the son’s money. The son can use that money to buy things for the client (such as personal items and other things Medicaid will not cover.) He should never give the money back to mom, as it may disqualify her from Medicaid. When the client passes away, whatever money is left with son remains with the son and is not subject to Medicaid Recovery.
Making the Gift
A split gift plan does not work for everyone. In order to even make a gift, we need to consider three things. First, if we have the right assets to make a gift. Second, if we have the power to make the gift. Third, if we have trusted people to receive the gift.
The Right Assets to Make a Split Gift Plan
Some assets work better than others in a split gift plan. If the person has less than $50,000, the money can usually be spent down very quickly and another strategy might be more appropriate. Gifting some assets may cause adverse tax consequences or penalties. Gifts do not have to be just cash. They can be a house, or a car or investments. When making gifts of real property, there can be complications in how to cure part of the gift to provide for the client’s care. Most types of property however can be gifted.
Someone to Make the Gift
In order for a split gift plan to occur, someone must be able to make the gift. If the client is competent and wants to do a split gift plan, she can make the gift. If the client is competent, but does not want to make a gift, then there will be no gift made. The client will simply pay for her own care until the money is gone and she needs Medicaid.
If the client is no longer competent, then the question becomes did she appoint an agent under power of attorney while she was competent, to whom she gave the power to gift. The POA document must specifically give the power to make gifts, or else there is no choice but to spend down the money until it is gone. If the client is no longer competent and has no POA, a guardianship may be needed. The courts will most often require the money be spent on care, and may not approve a split gift plan.
Someone to Receive the Gift
Once we know we have the power to make a gift, we look for an appropriate person to receive the gift. We also consider how the gift will be held by that person. A lot of these decisions rely on the numbers of trusted people and the client’s family dynamic.
Split gift plans do not work between spouses as Medicaid looks at a married couple a whole unit. Any gifts made to the spouse still count as an asset that could disqualify the client from Medicaid.