Can You Give Money to Your Kids Before Going into a Nursing Home?

If you expect to need nursing home care, you may want to start thinking about what will happen to your savings. You could give money to your children, but if you need Medicaid to help pay for nursing home care, doing so could affect your eligibility. Medicaid has strict rules surrounding gifts and asset transfers, and giving away money at the wrong time can result in a penalty period during which Medicaid will not pay for your care. Before transferring money or other assets, it’s important to understand how Medicaid’s rules work.

Read more: How to Qualify for Medicaid without Spending Down All Your Money

Why Does Medicaid Care About Gifts? 

Medicaid is a needs-based program, which means applicants must meet certain financial requirements to qualify for long-term care benefits. Without restrictions on gifts, someone could theoretically give away significant assets and immediately become financially eligible for Medicaid. To prevent this, Medicaid reviews certain financial transactions made before a person applies for long-term care benefits. A gift to a child may be considered a transfer for less than fair market value because you did not receive something of equal value in return. Depending on when the gift was made, it could result in a Medicaid penalty.

Understand the Five-Year Lookback Period

When you apply for long-term care Medicaid, the state generally reviews certain asset transfers made during the previous five years, or 60 months. This is known as the Medicaid lookback period. Transactions Medicaid may review include:

• Cash gifts to children or grandchildren
• Transfers of investments or other financial assets
• Adding someone to ownership of certain property
• Selling assets for less than fair market value
• Certain transfers involving a home or other real estate

If a transfer violates Medicaid’s rules, the result isn’t necessarily permanent ineligibility. Instead, Medicaid may impose a penalty period based on the value of the transferred assets and applicable state rules. During this period, you may otherwise meet Medicaid’s requirements but still be responsible for paying for nursing home care.

Read more: How a Funeral Trust Can Help You Protect Assets and Qualify for Medicaid 

What About the Annual Gift Tax Exclusion?

One particularly important point is that Medicaid rules and federal gift tax rules are not the same. You may have heard that you can give your children a certain amount of money each year without triggering federal gift tax consequences. However, that does not mean the same gift is automatically permissible for Medicaid purposes.

A gift can fall within the federal gift tax exclusion and still be treated as an uncompensated transfer when Medicaid eligibility is evaluated. 

Are Any Transfers Allowed?

Yes. Not every transfer results in a Medicaid penalty. Federal Medicaid law provides exceptions for certain transfers, including some transfers involving spouses and individuals with disabilities. Special rules can also apply to a home transferred to certain qualifying family members. However, these exceptions have specific requirements. Families should verify that a transfer qualifies before moving money or changing ownership of an asset.

What Should You Do With Excess Assets Instead?

If your assets exceed Medicaid’s eligibility limit, giving the money to your children isn’t your only option. Depending on your circumstances, you may be able to spend excess assets on legitimate goods and services for yourself. Examples could include paying debts, addressing medical or dental needs, making permissible home improvements or purchasing certain prepaid funeral arrangements.

Other Medicaid planning strategies may also be available. In some circumstances, for example, a Medicaid Compliant Annuity can convert countable assets into an income stream while satisfying Medicaid requirements.

What If You’ve Already Given Money to Your Kids?

If you’ve already made a significant gift, don’t assume you won’t be able to qualify for Medicaid. Instead, gather documentation showing what was transferred, when the transfer occurred and who received it. Depending on the circumstances and applicable state rules, there may be ways to address a previous transfer.

Most importantly, avoid making additional transfers simply because you’ve already given some money away. A Medicaid planning professional or elder law attorney can review the situation and help determine your next steps.

Take the Next Step

If you’re considering giving money to your children or have already made gifts that you’re concerned could affect Medicaid eligibility, our team can help. Contact us today to review your situation and explore the Medicaid planning strategies available to you.