This week in Crisis Corner, we want to discuss what to do when mom or dad gives you a large sum of money as part of their Medicaid planning.
It is a very common practice for aging parents, especially those with a new diagnosis of Alzheimer’s or Parkinson’s, to give a large portion of their assets to their children and start a “five year look back period.” In most cases, Medicaid will not pay benefits for an applicant that has made a gift within 60 months of applying. The period of time that the applicant is ineligible is based upon the size of the gift. Under the current standards (these change at least once per year) a gift of $631,450.00, give or take a little bit based on leap years, is enough to trigger a five year penalty. If the gift is less than this amount, it might be worth applying right away, or it might still be better to wait. That is a separate discussion that has to be had on a case by case basis.
Whether the gift is part of a plan to apply soon or a plan to apply after five years, you may be left wondering what to do with all of that money. In general, there are three options:
- Spend it. When a gift is made for Medicaid purposes, it has to be a true gift. That means that mom or dad cannot give it to you on the condition that you will only use it for them until they die. You can quit your job and take a month long trip to Europe, by a Ferrari or two, or just pay off your own debt. Most children do not do this but it is an option.
- Put it in the bank. Some children put some or all of the money in a bank account that is dog-eared for use that benefits mom or dad. This is totally acceptable and, for smaller gifts, it may be the best way to handle the funds. This gives you the flexibility to still use some of it for yourself and it is readily available to help mom or dad if they need help.
- Put it into a Safe Harbor Trust. If the gift is a significant one (that means different things to different people), and you want to use all or most of the money for mom or dad’s needs, then putting the money into a Trust for their benefit has a lot of advantages.
- If the gift was made to several children who all want to help mom or dad, they can all put their gifted money into one Trust and not worry about who is paying more from their gifts.
- If you rear-end someone on the freeway or otherwise get sued, the money is protected from the lawsuit.
- Similar protection is there if you predecease mom or dad.
- You, and any others putting money into the Trust, can designate where the money will go after mom or dad dies. For example, there are two kids but one was disinherited over a silly fight and both kids feel like the estate should be shared when mom or dad passes so the gift goes to only one of you and they put it into a Trust that says when mom or dad dies everything in the trust goes to both of you.
- You are able to avoid temptation. You might really want to save the money in case mom or dad needs it but you also really want a new car/home/vacation. You know that once you buy yourself one thing you will want to buy yourself more things. It might be easier if you keep enough of the gift to buy yourself one thing and the rest is securely in a Trust that cannot be used for the benefit of anyone except mom or dad.
When the plan to give you the gift was made, the attorney suggesting the gift should have talked to mom or dad about these options. If you came to Life Point Law and had a Family Meeting, the attorney should have also talked to you about these options. If you have not talked to anyone about what to do with the gift you received, or if you have a loved one that is waiting to run out of money so that they can apply for Medicaid (because they do not realize that these options exist), please give us a call and see how we can help you understand your options.