Are You Making Gifts You aren’t Even Aware of? (Part 1)

So often, when I explain to someone how the Medicaid lookback and transfer penalty work, the response I get back is, “Don’t worry.  My parents haven’t made any gifts.  We don’t have anything to worry about.”  But, the term “gift” is such a subjective one.  It can mean different things to different people.  However, the only definition that matters is the one Medicaid uses.  Let me explain.

 Not too long ago, we handled a Medicaid application for a family.  Some clients we have worked with for a period of years, guiding them through the various stages of long term care, which culminates in a Medicaid application.  In other cases, we are called upon just before Medicaid is needed.  Eddie’s call about his dad fit the second scenario.  We knew nothing about his parents’ finances and Dad was in a nursing home.  Eddie was panicked about applying for Medicaid as soon as possible to protect as much as possible for Mom.

 I gave Eddie our Medicaid checklist of documents we would need to file the application, including 5 years of financial records for every account Mom and Dad owned.  I explained that we need to closely scrutinize money going into and out of those accounts, looking for transfers for less than fair value.  We want to determine, before we file the application, if there will be any transfers which will cause a Medicaid penalty.  Sometimes we can correct them before we apply or at least gather as much paperwork as we can to present to Medicaid if and when it becomes an issue to limit the penalty.

 Eddie told me not to worry.  Mom and Dad didn’t make any gifts, he told me.  The bank account statements I started to receive, however, painted a different picture.  As soon as we started to review them, we noticed cash withdrawals of, in some cases, $2000 per month.  Eddie told me, “Oh, my folks help out my aunt and her family in Ecuador.  But, that’s not a problem for Medicaid, right?”

 “Actually,” I said, “it is.  That’s a transfer subject to a Medicaid penalty.”  Eddie had a hard time grasping that.  “It’s not a gift,” he said.  “My aunt helped my family when my parents first came to this country when I was a young boy.  My parents are really repaying a debt.”  Unfortunately, Medicaid doesn’t look at it that way.  Under their rules it’s subject to a penalty, a period during which Dad is not eligible for Medicaid, even though he meets all the other Medicaid qualifications.

 Eddie was distraught until I told him what we needed to do but we had to work fast.  Next week I’ll tell you what I told him