Reed: Gifting assets that prevent Medicaid qualification

Sandra W. Reed
Sandra Reed

The only assets James, 82, has are his home, his automobile and an IRA worth $70,000. He has health conditions that make it likely he will need nursing home care at some time before he dies. James has three married children.

Would making gifts to his children be a good strategy to reduce his countable assets to qualify for Medicaid?

Gifting to reduce countable assets is tricky

Gifting to reduce countable assets to qualify for Medicaid is tricky because Medicaid has a lookback period of five years that delays qualification due to gifts. The delay is calculated by dividing the value of the gift by a divisor which is $213.71 for 2021. Thus, gifting to reduce assets is a gamble.

Suppose James makes a gift of $15,000 to each child and $15,000 to each of their spouses, the max amount without incurring gift tax, reducing his IRA by $60,000.  The excess $10,000 can be used in ways that incur no penalty.

If James needs to go into the nursing home at any time before the expiration of five years, James will need assurance that his children and their spouses will pay his nursing home expenses during that period.

Assume that on June 1, 2021, James entered a nursing home costing $5,000 a month. The amount paid to the home each month reduces the gift amount used to calculate the penalty period. When James qualifies for Medicaid, his children would have paid $35,000 to the nursing home. However, they would retain $25,000 of the $60,000 gift. Thus, the gamble will have had a payoff of $25,000.

If more than five years pass before James enters a nursing home, he has hit the lottery with his bet.

Methods to reduce assets without penalty

James can use $8,000 to make improvements to his home, purchase a better car, buy a prepaid burial policy or a combination of these. The home, the car and the burial policy are non-countable resources. Thus, none of these expenditures will create a penalty to delay Medicaid qualification. James can retain $2,000 which is within the asset amount allowed.

Sandra W. Reed practices Elder Law in Somervell County, handling probating of estates, drafting of wills, trusts, powers of attorney and deeds as well as estate and Medicaid planning.  She lives on beautiful Chalk Mountain and can be reached at 254.797.0211; 817.946.2809 or at sreed@kbzlaw.com.