The Gift Penalty Rule and You
In the world of nursing home Medicaid eligibility, the words “gift” and “penalty” go together like “sunshine” and “lollipops”. In almost every case where there is a gift within the look back period you will find a penalty that prevents a person from obtaining Medicaid benefits. Your Medicaid Attorney’s experience can make the difference. It can be the difference between effective nursing home asset protection and disaster.
Who Said What?
I regularly speak with families that heard from someone, somewhere, at some point in time that a certain type of transfer or gift is acceptable. In every instance that I can remember a lawyer did not give this advice. Or in the few instances where it is from a lawyer, it is not from an experienced Medicaid Attorney. And that is usually the beginning of a long line of mistakes before they find their way to me.
So let’s get the record straight on what you need to be aware of before making that gift you’ve been thinking about. And if you have already made that gift and your family member needs Medicaid benefits within the look back period then run, don’t walk, to a Medicaid Attorney.
The Gift Penalty Rule
First – any transfer of any asset for less than fair consideration within the lookback period (up to 5 years) of applying for Texas Title 19 Medicaid benefits creates a penalty period of ineligibility. Say it with me out loud – any transfer of any asset for less than fair consideration within the lookback period of applying for Medicaid benefits creates a penalty period of ineligibility.
Now that we understand the rule, let’s go over some basics.
What Kind of Transfers?
You will notice this rule includes all types of transfers. This includes writing a check to a friend or family member or handing them cash. This also covers signing a deed over to someone etc. As it says, the rule includes any and every transfer for less than fair consideration. A simple way to look at it is if the person gives away an interest and access to property, you are at risk of the HHSC penalizing the transfer. If the HHSC penalizes the transfer, then you have to deal with a period of ineligibility for benefits.
What About This Joint Account Trick?
One popular transaction that comes up often is taking a joint account and removing the Medicaid applicant’s name from the account. This is a gift. The Medicaid applicant had unrestricted access to the full value of the account on one day and after his or her name was removed from the account they no longer had access to the account. This transaction results in a period of ineligibility.
But The IRS Said I Could
Another popular question concerns Medicaid penalties and annual exclusion gifts. For tax purposes, the IRS allows each person to gift a certain value to any person tax free. That is where the annual exclusion gifts end, for tax purposes only. In the context of a Medicaid application, a gift that you made which is tax-free can very well be (and almost always is) a gift subject to penalties for Medicaid eligibility purposes.
Even Holidays and Birthdays?
Another example is special occasion gifts such as birthdays and graduations etc. There is no exclusion for these types of transfers no matter how noble or small they may be. Any and every gift is subject to the penalty period of ineligibility rules whether it is $5,000 or $500.
There Are Narrow Exceptions
There are a few very narrow exceptions of transfers that do not create a penalty, however the burden is on you and your Houston Medicaid Attorney to establish by the evidence that you qualify within one of the specific exceptions. If you do not prove your case you are left with a penalty, and that is what this article is about. We will review some of these exceptions in detail in future articles.
Stonewalling Doesn’t Work
One final word; if you are considering a strategy of stonewalling the Health and Human Services Commission by denying information, then think again. You bear the burden of proving your eligibility. If the law presumes a transfer is a penalty and you do not prove otherwise your loved one will be denied benefits.
So how much can you give away without creating a gift penalty?
If you are outside the look back period then you can give away as much as you want. If you are within the look back period then you really can’t give away anything without creating a penalty. However, the right strategy can manage the damage and make it worthwhile. The best thing you can do is to speak with an attorney. A Houston Medicaid Attorney can help you structure transfers to avoid the HHSC calling them “gifts” in the first place.
What Does Work?
Fortunately, the situation is not all doom and gloom. In many cases I can help families create a path to protect assets from nursing home costs. I have done this for clients in The Woodlands and all across Texas. I have even helped families where nobody lives in Texas except the Applicant. It is legal, proven, safe, and it works.