Skip to Main Content (717) 697-3223

When Older Adults Give Monetary Gifts – Keystone Elder Law – Mechanicsburg PA

The notion that it is better to give than to receive has been rooted in all of us from a very young age. However, most readers are not aware that giving gifts around the holiday season can have serious implications for those facing a nursing home crisis.  If you or a loved one need to apply for Medical Assistance benefits in the future, you need to be cautious as to how and when monetary gifts are given.  Giving monetary gifts could interfere with your eligibility for Medical Assistance long term care benefits and potentially make your adult children liable for payment of your care.

The average cost of skilled nursing care in Pennsylvania is approaching $10,000 per month. Most residents do not have sufficient income to front these costs.  Medicaid, (or Medical Assistance, as it is referred to in Pennsylvania) is the primary source of payment available in Pennsylvania for residents who need skilled nursing care.

In order to become eligible for Medical Assistance, an individual must have both a medical need and meet certain eligibility requirements related to resources and income.

First, the individual must have a medical need for long term care services. Generally, this means that a physician, a county Agency on Aging, and the state Department of Human Services (the “Department”) have verified that the individual requires long term care in either a nursing facility or at home.

Second, the individual must meet certain financial requirements. Namely, the individual must not have income that exceeds the cost of care.  When considering an individual’s income, only income of the individual applicant is reviewed.  Income of a spouse is not considered in determining income eligibility.  Additionally, the individual’s resources are reviewed to determine whether the amount of resources is within certain regulatory guidelines.  Resources include, but are not limited to:  boats, vehicles, life insurance, annuities, stocks, bonds, and bank accounts.  If an individual applicant is married at the time of their application, assets that are jointly owned with the individual applicant could be considered when reviewing an individual applicant’s eligibility for Medical Assistance.   The process of determining whether an individual is within regulatory resource guidelines is complicated and is not the focus of this week’s article.  If you are facing a nursing home crisis, I urge you to contact an experienced elder law attorney for further information regarding resource eligibility.

Those of you with creative minds may have read the above and determined that an individual can simply give away all of their resources prior to their application for Medical Assistance and avoid the intricacies of calculating resources. However, Medical Assistance regulations include provisions preventing you from gifting away all of your resources prior to an application for Medical Assistance.

Many are not aware of these regulations until they are on the doorstep of an application for Medical Assistance, which often is too late. I have prepared a list of common questions our office often receives about the concept of gifting.  Keep them in mind as you prepare for the holidays and finalize your gift list for friends and relatives.

What is Considered a Gift?

The Department refers to a gift as a transfer for less than fair market value. The Department defines fair market value as:  1) the documented value of income or a liquid resource (such as a savings account, stock, or bond); 2) the appraised value of a resource; or 3) the amount an individual can expect to receive for property or other resource on the open market in the geographic area at a specific time.

Keeping with our holiday theme, we commonly see gifts made to children, grandchildren, other relatives, or non-profit groups in the form of cash or check. This is especially true around the holidays.  Such an act is considered a transfer for less than fair market value because you are not receiving anything in return for the monetary payment.

Gifts can also occur when transfers are made and monetary value is exchanged. For example, if you transferred your home to your child for the sum of $50,000 and the fair market value of your home was $100,000, the result of the transfer would be a gift in the amount of $50,000.  The gift represents the difference between the fair market value of an item and the amount received.

Can’t I Gift Away $14,000 per Year Without a Problem?

Many people confuse the concept of gifting as it relates to Medical Assistance with IRS regulations related to the annual gift tax exclusion. These are two separate concepts.  In 2017, the annual gift tax exclusion allows an individual to give away up to $14,000 per person per year.

Gifting as it relates to Medical Assistance is simply any transfer for less than fair market value. It is the Medical Assistance regulations that determine an individual’s eligibility for Medical Assistance, not the IRS regulations related to the gift tax exclusion.

How Does the Department Know a Gift was Made?

When an individual applies for Medical Assistance they are required to provide bank statements and tax returns for the period of 60 months prior to the application. The Department reviews this information to determine whether an individual is economically eligible for Medical Assistance and whether any gifts were made during this time.  Checks written to individuals and organizations, as well as cash withdrawals, are scrutinized.

What is the “Look Back” Period and When Does it Begin?

Many of you may have heard of the concept of a “look back” period. This phrase is commonly used to refer to the 60 months of financial information that must be provided to the Department during the Medical Assistance application process.  The five year period is calculated beginning with the date of an application for Medical Assistance and includes the 60 month period preceding this date.

There is much more to be said about the concept of gifting and its consequences. Tune in next week for additional information regarding gifting and how it can affect an individual’s eligibility for Medical Assistance.