Gifting money from the sale of mom's home.

You could do that, but mom would penalized (a period of ineligiblity will be imposed) when she applies for Medicaid benefits. Uncompensated gifting in contemplation of applying for Medicaid does not work as the value of assets gifted in the past 5 years will be brought back into her estate for Medicaid eligibility purposes.

Question: Is mom currently in a nursing home and you want to qualify her for Medicaid or are you planning ahead?

In either event, there are tools you can use that will allow the proceeds from the sale of the home to be used for her health, maintenance, and welfare and will not prevent her from eligibility or jeopardize benefits if currently being received.

These two are particularly effective in these circumstances:

1. A Supplemental Needs Trust

2. A Personal Care or Services Contract

If mom is currently in a nursing home and begins to receive Medicaid before the home is sold it is important the proceeds of the sale be divested in a manner that will not disqualify her from benefits in the SAME MONTH the proceeds are received. If not, the asset will be countable and she will lose benefits.

What does a Personal Care or Services Contract consist of? Is that for a payed assistant and would that assistant be required to pay taxes as earned income?

Thank you.

The Personal Services/Care Contract is an employment contract entered into between the elder care receiver and typically the adult child care giver. The contract specifies the term of the contract, the services to be provided, the rate of pay, and how the rate of pay is established and paid.

The goal is to transfer funds to a family member so the funds will be available to provide services above and beyond those provided by Medicaid without incurring a Medicaid eligibility transer penalty. Once the money is transferred to the adult care giver it is free and clear of Medicaid and may be used for any purpose desired by the adult-child employee.

This, of course, brings up the issue of whether this is a good idea to begin with or not. Transferring money to adult children is usually done with the best of intentions...and most adult children I have encountered do have their parent's best interest at heart. The problem is that this is not always the case and if the child decides to they may use the money on a 10 cruise instead of taking care of mom or dad. Moreover, things do happen that are out our control...divorce, accidents, etc. where funds could now be exposed to the claims of creditors. Therefore, when establishing these arrangements it may be helpful to place the funds received in a trust or to use an immediate annuity as the payment vehicle.

With respect to income taxes, yes, the recipient is obligated to pay ordinary income tax and FICA. The employer-parent is also responsible for FICA and FUTA. It is difficult to claim independent contractor status when providing services to only one indiviual.

Thanks Ralph. I just helped my parents sell their car at fair market value...Dad is on Medicaid in a Nursing Home, Mom is the community Spouse. Mom wants to "pay" me $1,500.00 for helping them out for the past 7 mos. but i cannot afford to jeopordize Dad's Medicaid and the possibility of Mom receiving medicaid perhaps in the very near future. Mom want's to save for "emergencies" but unfortunately she can't save and receive at the same time. I think she should purchase medical assistive items for herself and pay down her credit card bills. What do you suggest?
I'm so happy I found this site and I thank all who post supportive feed back. We all need a hug.
Kind regards!

My grandmother receives medicare and medicaid QMB but needs to transition to medicaid that pays for nursing home care. She's been in a nursing home since June 2010. Medicare payed for the first 100 days of her stay and I used her social security (761.00 monthly) to pay for the difference. She deeded her property to me for $10.00 in April 2010. I'm concerned once I've submitted the paperwork for nursing home medicaid the state of Texas will take the house (appraised at 59,000) that she's deeded to me or she will be penalized and be unable to stay in the nursing home forcing me to care for her. I've cared for her for many years and can't physically and emotionally do it anymore because she stopped walking and has dementia. What am I to do in this situation?

You almost had it right. Transfer of the home directly from your grandmother to you will be considered an uncompensated transfer resulting in a penalty.

If the property had remained in her name only as a homestead residence it would have been an exempt asset with respect to Medicaid qualification. At her demise, however, the value of the property would be subject to Texas Medicaid Estate Recovery.

What you needed to do was to create an "enhanced life estate" in the property for your grandmother (aka "Lady Bird Deed").

Here is how to fix it:

1. Quit claim the deed back to your grandmother solely.

2. Quit claim the home back to you but this time including language giving your grandmother an "enhanced life estate" in the property.

What the "enhanced life estate deed" does is essentially transfer the property to immediately but gives your grandmother, while she is alive, the right to do anything with property she would otherwise do if she owned it (live in it, rent it, sell it, burn it down, etc.).

At her demise the property will devise to you and, this is the key, will avoid probate and, therefore, Texas Medicaid Estate Recovery procedures.

Hello,
My mother went into a nursing home as private pay while we applied for Medicaid. I am now told that the $3,000 life insurance policy she has to pay for her funeral disqualifies her for Texas Medicaid. Can she assign this policy to the funeral home and keep from having to reapply? Help!!!

My mom is 95 years old and we are just selling her home and she is moving in with me. It will be a $200,000 sale after fees. What should I do with the money. I am an only child and she is living with me. Can imstart gifting money out to her grandchildren or just keep it in CDs for her care?