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

A gift consists not in what is done or given, but in the intention of the giver or doer – Seneca

This quote resonates with me when I think of making a gift. Studies on human behavior have found that gift giving is a surprisingly complex part of human interaction designed to help define relationships and strengthen bonds with family and friends.  People who forego gift giving or refuse to accept gifts miss out on an important connection with family and friends.

These studies highlight the counter-intuitive nature of the Medical Assistance regulations regarding gifting as most applicants have not made gifts to their loved ones based upon a calculated decision with a future long term care crisis in mind. Most give because it is a part of human nature.  Despite this noble intent, gifting before a long term care crisis can create problems for you and your loved ones when applying for Medical Assistance.

Last week’s article discussed the concept of gifting as it relates to Medical Assistance in Pennsylvania. However, due to space limitations, I was only able to define the concept of gifting and discuss how the Pennsylvania Department of Human Services (the “Department”) determines whether a gift was made.  This week’s article focuses on common questions related to the consequences of gifting and what to do if you have made prior gifts.

What is a Penalty Period and How is it Calculated?

If the Department determines that assets were transferred for less than fair market value during the look back period, it may penalize an individual by determining the individual is ineligible for Medical Assistance for a period of time. This is commonly referred to as a “penalty period.”  The Department may not assess a penalty for gifts made prior to the five year look back period and may not assess a penalty for a period longer than five years.

A penalty period is calculated by taking the amount of gifts made during the look back period and dividing it by the average daily private pay rate in effect at the time the period of ineligibility is determined. For 2017, the penalty divisor is $321.95 per day.  Using the example from last week’s article regarding the transfer of a residence valued at $100,000 and the penalty divisor for 2017, such a gift would result in a period of ineligibility equal to approximately 311 days.

Before any significant gift is made, you should consult an experienced elder law attorney who can advise you on the implications of such gift.

How do I Pay for Care During a Penalty Period?

If a period of ineligibility is determined, the individual needing skilled nursing care must privately pay for the cost of room and board provided at a nursing facility. Unfortunately, for many individuals applying for Medical Assistance on their own, gifting problems are often not discovered until the individual has exhausted their financial resources.

If an individual does not have sufficient funds to pay for the cost of care during a period of ineligibility, the adult children of the individual may be responsible for paying for the cost of care under Pennsylvania’s filial support laws.

For those reading who are adult children of an elderly individual, an experienced elder law attorney can assist you with understanding your liability as an adult child of an individual who may need Medical Assistance in the future.

Is Any Amount of Gifting OK?

Not all gifts will result in a period of ineligibility for Medical Assistance. Given the timing of the publication of this article, it is important to note that transferring up to $500 in any given calendar month to any individual is permissible and will not cause a period of ineligibility for Medical Assistance.  For example, if you have three children and regularly give each $100 as a holiday gift, such gifts will not result in a period of ineligibility.  However, if you had three children and three grandchildren and gave each $100 as a holiday gift, such gifts may result in a period of ineligibility for Medical Assistance.  Therefore, you should be mindful of the amount of gifts you are making this time of year and the timing of when such gifts are made.

For those readers thinking about the future preservation of assets, I will also note that other transfers for less than fair market value will not result in a period of ineligibility for Medical Assistance. Transferring assets to a spouse will not create a period of ineligibility.  Such a strategy can be an effective planning tool when planning for a long term care crisis.  Additionally, certain transfers to trusts for the benefit of a disabled child and transfers of real estate to caregiving children residing in your home may be permissible.

Can I “Fix” Problems with Gifting to Avoid a Penalty Period?

If you or a loved one have already gifted assets and are facing a long term care crisis, it may be possible to fix problems that may arise with an application for Medical Assistance as a result of these prior gifts. A gift may be “cured” if it is returned to the individual to whom it was given.  However, most gifts are used quickly after being received and returning gifts rarely occurs.  Keep in mind that the entire gift must be returned in order to “cure the gift.”  Partial cures of gifted assets may not be accepted by the Department as sufficient to reverse any period of ineligibility caused by a gift.

Are There Any Appeal Options?

There may be limited options available in the event that a period of ineligibility is assessed due to gifting which cannot be cured. When an individual transfers an asset for less than fair market value, the Department presumes it was transferred to establish or maintain eligibility for Medical Assistance.  This presumption can be overcome if an individual can provide evidence that the transfer was solely for a purpose other than to qualify for Medical Assistance. In addition, the Department can forgive gifts in part or in full if it is proven that denying the individual Medical Assistance would cause an undue hardship.

There are other situations where an Undue Hardship Waiver request may also be available to those individuals applying for Medical Assistance that are not covered in this article.  If you or a loved one have been denied Medical Assistance, you should contact an experienced elder law attorney to determine whether your situation warrants an Undue Hardship Waiver request.