Today we’re going to look at Grandma and Grandpa, who sweetly gave a gift to their grandchildren one Holiday season… and why the DRA (Deficit Reduction Act of 2006) could leave them with no money, and no way to pay for health care.

Imagine a healthy and vigorous senior couple who decided to give $10,000 to a grandchild for some worthy reason. See the smiling, healthy, vigorous grandmother and grandfather as they happily celebrate Christmas or Hanukkah by giving money to a grandchild! It might have been tuition for medical school, help with a mortgage, or money for a divorce so a child could get out of an abusive marriage - any reason at all that a parent or grandparent might financially help a child or grandchild.

Regardless of the reason for the gift, the DRA law assumes that money was given away to qualify for Medicaid. Uncle Sam is not happy that Grandma and Grandpa gave away money that they could have used for future nursing home care. If either of them applies for Medicaid benefits within the next 5 years, Uncle Sam will audit their records!

He’s going to see if you have given away any money to your children, grandchildren, or charities during the 5 years prior to the application. If the government finds that you have given away more than $200, they will add all the gifts together and figure a penalty period of ineligibility for nursing home benefits. Remember, Uncle Sam and the state make the rules and they write the Medicaid benefit checks. If you don’t meet their rules, I’m sorry to tell you, they don’t write you a nursing home check. If their rules say there’s a penalty because you chose to give away your assets, then those are the rules.

Let’s apply these rules to our example. Imagine the gift check was $10,000 to “my sweet grandchild.” Whether it’s signed by Grandma or Grandpa, that gift is attributed to both Grandma and Grandpa. Under the DRA, Grandma and Grandpa could be punished by Medicaid for up to five years following the date of the gift.

To compute the penalty period, we take the value of the gift and we divide it by the average amount of the nursing home costs in our state (actually, our state uses a made-up number that they call a Nursing Home Divisor). So, if we assume that the average nursing home cost was only $5,000 per month, then we would divide the $10,000 gift by $5,000 and we’d see that penalty period would be two months (based on those assumptions). But when would Grandma and Grandpa be penalized for that two-month period? The answer may surprise you.

So, a gift of $10,000 made in December of 2012 can be a “Medicaid Time Bomb,” You see, if Grandma or Grandpa need nursing home care at any time before January 1st of 2017 (five years later), the Medicaid department is going to say, “Ah ha! Look at that gift of $10,000! You could have saved that to pay for your nursing home care. Go find money from somewhere else to pay for your care.” Now, even though you are broke and out of options, the government is not going to pay anything for your long term care because of a gift that has been long since spent, and forgotten.

Based on our example, the period of ineligibility for Medicaid assistance is two months, but the penalty period does not begin until either Grandma or Grandpa is in a nursing home and are otherwise eligible for Medicaid. The penalty period doesn’t expire until New Year’s Day of 2017. Imagine that! That’s what I call “cruel and unusual punishment.” Many senior citizens are unwittingly doing the right thing by helping their family members, and have no idea that the state and federal government are going to punish them by refusing to provide them with long term care down the road.

It is absolutely critical that every family that is considering applying for Medicaid assistance see an elder law attorney who is concentrated in the area of long term care benefits and estate planning. An elder law attorney may be able to help you get your penalty period reduced or even dismissed. At the same time, it is absolutely critical that you do not engage in Do-It-Yourself estate planning by intentionally giving away assets.

You might wonder, “How are they going to know what I gave away?” The fact of the matter is, the burden of proof is on you, and you will be required to provide a full five years of financial records before you can receive benefits. Remember, they are not asking you to write a check to them, you’re asking them to write a check to you. They can wait.

To help make sure more of your money goes to your loved ones and less to the state, call my firm at 800-939-9093.

In our next lesson, you’ll discover the Myth of the Five Year Look back.

Best,

Richard

No one wants to be out of money and out of options before they are out of breath. While it’s not possible to guarantee specific results, an elder law attorney works with clients and families to guide them through the minefield of public benefits, veteran’s benefits, Medicare, Social Security, special needs trusts, powers of attorney, and Medicaid. Our job is to increase the quality of life of our clients, not just to figure out who-gets-what after you pass away. Give us a call and check us out. If we’re not the right fit for you, then we can help you find someone who is. Call us at 800-939-9093 today!