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When we want to give our children a gift, perhaps in thanks for caregiving, the last thing on our mind is sending them to jail. But that may be exactly what we are doing.

Many people know that they do not need to pay a federal gift tax if they pay someone else’s medical or educational expenses directly. Many people know that no federal gift tax is imposed on a gift of up to $14,000 in a given year (as of 2017) or, if they file an explanatory form with the IRS, up to $70,000 to be treated as a gift over five years.

But Medicaid rules are different.

Medicaid Rules

Medicaid assumes that any gift or transfer for less than fair market value made in the five years before applying was made in order to qualify for Medicaid – and is fraud. The older we get, the less likely we are to be able to overcome that presumption (and the more likely we are to need to hire an elder lawyer to appeal the Medicaid denial.)

How does Medicaid punish this presumed fraud? It divides the amount of the gift by $162.41 (2017) to determine the length of the penalty period during which it will not pay benefits. For example, if you and your spouse, together, give each of your two children $20,000, for a total of $40,000, and one of you needs Medicaid within 5 years, Medicaid will not pay nursing home benefits for 123 days.

What do you do for those four months during which you will receive no Medicaid benefits? By the time you need skilled nursing home care, your needs will probably be too great for your children to handle.

Maybe they can give the money back. Then you will qualify.

Maybe they can’t – or won’t. What happens then?

For the entire penalty period, you must go without the skilled nursing and other care you need, whether at home, in an unlicensed board and care facility or in a homeless shelter (Yes, older people have been discharged to homeless shelters. It does you little good if some elder lawyer discovers this and brings suit against the nursing home later: who knows how long you will be there?)

Medicaid “Mason Manor”

If your children can give back part of the money, paying for your room and board in a nursing home during the penalty period, you may qualify for “Mason Manor.” Then Medicaid will pay the nursing and related medical expenses, but not room and board, during the penalty period.

Defrauding Medicaid and Elder Exploitation

Whether your children return part or none of the money, they may well be faced with both a civil suit and a felony charge. Your children will be viewed as having defrauded Medicaid and exploited you. The agent under your Durable Power of Attorney or a court-appointed guardian may sue them for converting your funds to theirs. The Medicaid Fraud Unit of the Office of the Attorney General may get involved. The District Attorney may bring a criminal prosecution for exploitation. As of September 1, 2017 exploitation of an elderly or disabled person is a first-degree felony in Texas.

Following Medicaid and VA Rules

How can you give to your children without risking sending them to jail?

The VA will honor a Family Caregiver Agreement.

Medicaid will honor payments to a family caregiver – if they are made by a home health agency.

Both the VA and Medicaid exempt your home and car in determining financial eligibility.

As of September 1, 2017 Texans can transfer their car on death free of Medicaid estate recovery.

Texans can also transfer their home on death free of Medicaid estate recovery. An elder lawyer can help you choose the type of deed which works for you.

You don’t need to send your children to jail – or deny yourself needed medical care. By planning ahead and following VA and Medicaid rules, you can give your children gifts of love and still get the care you need.

Estate Planning attorney, Terry Garrett, is a member of the National Academy of Elder Law Attorneys and is active in the Texas and Austin Bar Associations. She graduated with honors from Cornell University. She was on the Dean’s List at Wharton Business School. She earned her J.D. at Columbia Law School, receiving the Parker Award and a Mellon Fellowship.

She assists families of people with special needs, people planning for the retirement years and people administering estates.


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