When faced with the daunting prospect of paying for nursing home care out of pocket, many people consider gifting their assets to their children as a way to qualify for Medicaid. However, this strategy is not only flawed but can also lead to penalties and put your loved ones at risk. In this post, we'll explore the dangers of giving away assets to qualify for Medicaid and discuss a better alternative: creating a Medicaid Asset Protection Trust.

The Medicaid Lookback Period and Its Consequences

• Medicaid closely examines your spending and gift history during the five years before you apply for benefits, known as the lookback period.
  
• If you have given away assets without receiving fair market value in return, Medicaid will impose a "period of ineligibility" based on the amount of uncompensated transfers.
  
• During this period, Medicaid will not cover your nursing home costs, leaving you or your family to pay out of pocket.

The Benefits of a Medicaid Asset Protection Trust

Creating a Medicaid Asset Protection Trust (MAPT) is a safer and more effective strategy than gifting your assets. Here's why:

1. Protecting Your Spouse

• A Medicaid trust allows your spouse to maintain control of the assets as your successor trustee, ensuring their financial security after your passing.
• When you give assets away outright, your relatives may not be able to return them if your spouse needs them, and they have no legal obligation to do so.

2. Preserving Your Home's Value

• Adding your children to your home's deed can result in a Medicaid ineligibility period of up to five years and expose them to capital gains tax.
• Placing your home in an asset protection trust preserves its value for your spouse and heirs.

3. Safeguarding Inheritances

• Giving large sums of money directly to relatives can be risky, as they may lose it to creditors, lawsuits, or divorce settlements.
• A trust allows you to control when the money is distributed and protect it from being used to pay court judgments.

4. Avoiding Legal Penalties

• Failing to disclose asset transfers when applying for Medicaid is against the law.
• The government can pursue your spouse and heirs after your passing to recoup the costs it paid for your care.

5. Minimizing Tax Liability

• Gifting more than $18,000 a year or $13.61 million over your lifetime (as of 2024) may result in a gift tax.
  
• Medicaid treats these gifts as transfers, which can affect your eligibility.

6. Allowing for Donations and Life Event Gifts

• A trust enables you to set up distributions for weddings, birthdays, holidays, and graduations without incurring transfer penalties.
• You can also arrange one-time or recurring charitable donations without affecting your Medicaid eligibility.

Consult with an Elder Law Attorney 

While it may be tempting to give away your assets to qualify for Medicaid, this strategy can backfire and leave you and your loved ones in a precarious position. Instead, you should have an experienced Elder Law attorney create a Medicaid Asset Protection Trust to help safeguard your assets, protect your spouse and heirs, and ensure your eligibility for Medicaid without risking penalties or legal consequences. At Rochester Elder Law, we specialize in Medicaid planning. Contact us today to schedule a consultation. You'll be glad you did.