Transferring assets, cash or property, without receiving anything of equal value is subject to gift…
Mom and dad are getting older. One day dad tells mom that they may need to move to a nursing home. Concerned that the state will take all of their money, he takes certain precautionary measures; dad executes a deed transferring the home to his trusted adult children. For the average middle income family the home is the most valuable asset.
All goes well for a little while, until mom and dad need to go into an assisted living facility. Most facilities require residents to privately pay for two years before they can apply for Medicaid. The cost is barely affordable and mom and dad’s life savings are rapidly depleted. Enter Medicaid – a government-funded program that provides health coverage for certain low-income individuals.
When applying for Medicaid, the applicant must submit, among other things, all financial information for the last five years, including disclosing any transfers of assets that were made during that five-year window. Unfortunately for mom and dad, the transfer of the family home to the children was an uncompensated transfer, also known as a “gift”, which created a penalty period that must be satisfied before Medicaid will begin covering medical expenses. During the interim, mom and dad would need to continue paying the private pay rate to the facility. The likelihood is that the adult children may need to cover the cost of the facility because mom and dad ran out of money. Worse still, rather than imposing a penalty period, mom and dad may instead be denied Medicaid coverage.
This scenario may seem farfetched but you may know friends or family members that have engaged in do-it-yourself Medicaid planning.
With the proper guidance, mom and dad may have been able to protect their home and maybe have provided for their loved ones. Instead, mom and dad lost everything and still did not receive Medicaid coverage. This happened because they did not plan ahead properly.
Don’t make the same mistake mom and dad did. Before undertaking any kind of plan that involves transferring assets, be sure to consult with a skilled elder law attorney who will help guide you and your family.