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How to Avoid the Medicaid Penalty for Gifts

The truth about the Medicaid penalty for gifts

Michelle’s children were concerned that Michelle would need long-term nursing-home care in the near future. It was the holidays, and Michelle always got a lot of joy out of generosity. But her children also worried that her generosity could hurt her in the long run, because they had heard that people in Michelle’s circumstances ran the risk of a potential Medicaid penalty for gifts.

Medicaid Penalty for Gifts: What’s the Deal?

The concern is real. For Medicaid to cover the huge expense of nursing-home care, Michelle would have to show that she owned nothing more than around $2,500. And she must also show that she had not given away money or assets over the previous 60 months prior to applying for Medicaid. That Medicaid rule – the “look-back period” or the “transfer penalty” – could penalize Michelle dearly for her generosity. Depending on the size and number of the gifts, the Medicaid penalty could be substantial.

Many wrongly think that there is no Medicaid penalty for gifts of up to around $15,000 annually. That misunderstanding confuses tax law with Medicaid law (and it also misstates tax law, but that’s another subject). The Medicaid rules are entirely different from the tax rules. In the Medicaid context, gifts of any amount that are given during the look-back period can be penalized.

There are exceptions. These include gifts to spouses and siblings under certain circumstances, disabled children, and children who are caregivers and who live at home with the elder for a span of time. But overall, gifts and Medicaid do not go together. The Medicaid rules are complicated and the consequences for mistakes can be very costly. There are a number of options to protect assets and still qualify for benefits, but these options must be weighed with great care. This is why it’s best to consult attorneys who, like Andre O. McDonald, are qualified by experience and expertise in Medicaid law.

There is one harmless deception Michelle’s children might consider, to keep Michelle happy and still satisfy the Medicaid rules. The children might help Michelle fill out checks for all the gifts she’d like to give, together with a greeting card for each gift. Everybody could thank Michelle, tear up the check later, and tell her what they “bought” with that amount. It may be that that little deceit would be worth it, so Michelle could enjoy the holidays while also avoiding a potential Medicaid penalty for gifts.

We are here to help.

The sooner you consult a qualified elder law attorney, the more other options may be available. At McDonald Law Firm, we help families navigate maze of rules in order to qualify for Medicaid while preserving as much of your assets as the law would permit. If we can be of assistance with your family’s long-term care planning needs, please contact Andre O. McDonald, a knowledgeable Howard County estate planning, Medicaid planning, special needs planning and veterans pension planning attorney at (443) 741-1088 to schedule a consultation.

 

DISCLAIMER: THE INFORMATION POSTED ON THIS BLOG IS INTENDED FOR EDUCATIONAL PURPOSES ONLY AND IS NOT INTENDED TO CONVEY LEGAL OR TAX ADVICE.

 

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For help with estate planning, special needs planning, elder law or Veteran's Pension Planning needs throughout Howard, Montgomery, Prince George’s, Anne Arundel, and Baltimore County; and Baltimore City, contact McDonald Law Firm, LLC.

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