Q: Mom has Alzheimer’s and lives in a facility. My sister has power of attorney. Mom wants to gift $150,000 to grandkids rather than using it to pay for care. She worked all her life paying for Medicare. Shouldn't she be able to use it instead of her savings?
A: First, some general information on the subject:
The Deficit Reduction Act of 2006 significantly tightened the rules on making gifts in order to qualify for Medicaid. As a result, giving money to children or grandchildren at the time long-term care is needed may have some much-less-than-desirable consequences.
Qualifying for Medicaid
The rules for qualifying vary from state to state, but in general they are:
- Income Requirement The maximum income you can receive for 2008 is $657 per month ($976 for a couple).
- Asset Requirement (Also called the "Resource Requirement"). In general, you cannot have more than about $2,000 of assets. The types of assets that are considered as resources vary from state to state, but generally are: cash, checking and savings balances, CD's, stocks, bonds and mutual funds, real estate, and the surrender value of life insurance. Assets that are not considered resources may include your home, your car, your household goods, and certain other assets. These also vary from state to state, and may be subject to qualifications and limitations.
- Other Requirements: You must provide proof of U.S. citizenship or satisfactory immigrant status, and proof of residence in your state. Your state's Medicaid program may also have age limitations and medical criteria for qualifying.
Gifts and Qualifying for Medicaid
Some people choose to give their assets to someone else in order to reach the $2,000 threshold. A limit on this practice is the so called, "look-back" period in the Medicaid qualifying rules. The look-back period is the amount of time after the gift is made that the gift-giver will not be eligible for Medicaid benefits.
Prior to 2006, the look-back period was three years before the gift was made. Now, the look-back period is five years before the application for Medicaid. So, as an example, if a year before applying for Medicaid you gave away the equivalent of three months of long-term care in your area, under the pre-2006 rules you would be denied Medicaid benefits for three months, starting at the time of the gift. Now, the penalty starts at the time of applying for Medicaid. So, if you give away all your money and then apply for Medicaid, you could be in a very big bind for up to five years. The effect of these rules is that if you need care and you have assets, you have to use those assets for the care first.
Quality of Care under Medicaid
While we are all looking for bargains, remember that quite often, "You get what you pay for." Facilities that are funded exclusively by Medicaid funds generally do not have the same resources as private facilities. In fact, many are severely lacking in the resources needed to maintain quality equipment, staff, and services. A 2007 study cited in the Journal of the American Medical Association found that patients enrolled in Medicaid managed care plans are less likely to achieve good blood pressure control, receive breast cancer screening, or receive many types of care in a timely manner compared to similar patients enrolled in private plans. Even if the quality of Medicaid care in your state is comparable to what you can get by paying for a private facility, there may be geographic or service restrictions that can really affect the patient's quality of life (as well as the family's).
Answering the Question
This is a difficult dilemma, and one that many families are facing. The dilemma can often be avoided or mitigated with advance planning, but that doesn't help in your case.
As the agent named on your mother's durable power of attorney, your sister has a fiduciary duty to act in your mother's best interest. Without knowing all the facts, it's unfair to say that Medicaid care would not be in her best interest, especially if her own preference would be to give the money to her family. The Medicare qualifying rules make it somewhat of a moot point- since your mother needs care now and has the assets now, it seems your sister will have to devote the assets toward paying for a private care facility. There may be other options. If she hasn't already, your sister should consult an attorney who is knowledgeable in this area to be sure she understands all the options available to her.
Jon Beyrer, CFP, EA, is Vice President of Financial Planning at Blankinship & Foster, LLC, and a member of the Financial Planning Association and National Association of Personal Financial Advisors.
Read his full biography