Can mom gift money to her grand kids so Medicaid won't take it to pay for her nursing home?


Q: Mom has Alzheimer’s and lives in a facility. My sister has power of attorney. Mom wants to gift $150,000 to grand kids 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.

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.

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).

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 P. Beyrer, CFP, EA, is a personal financial adviser, specializing in comprehensive financial planning and investment portfolio management. He is a partner of Blankinship & Foster, LLC, a fee-only wealth advisory firm in Solana Beach, California. He holds a Master of Science Degree in Financial and Tax Planning.

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Slight error in the article...the income limit for Medicaid long-term care services in 2009 is $2,022 per month and will likely remain so for 2010.

With respect to the question, regardless of who holds power of attorney caregiving decisions (including financial) should be a family decision. I suspect that once everyone concerned has the correct information you will all be on the same page.

The issue is that with $150,000 in assets, if the care receiver lives long enough, there will be no money. Here are my thoughts...


I very much appreciate those who believe that Medicaid eligibility rules should be adhered to and that those who are confronted with long-term care costs should spend down all of their own assets before qualifying for Medicaid benefits.

I would like to take a moment, however, to argue that this is not always the best route either for the well being of the elder and/or the family or for that matter, taxpayers and the state.

Let me preface by saying that in my work I could really care less about inheritances. Although the desire to pass along assets is strong, most understand that is the needs of the one requiring care and their spouse (if applicable) that is paramount.

Even though quite comprehensive in many ways, public benefits do not pay for "everything". If in a nursing home the patient is going to need many things that Medicaid will not pay for (including rudimentary things like CLOTHING!).

If entering an assisted living facility under long-term care diversion, income will definitely be required to pay for room and board expenses plus any additional levels of care that may be required in the future.

In short, I believe it is very, very bad advice to simply spend down without exploring reasonable methods to preserve funds for the care receivers benefit. It is true that some of these methods may also preserve a portion of assets for heirs, but that certainly is not always the case.

In my view, the most effective planning is that which coordinates the client's own resources along with public benefits so he/she can age in place for as long as possible with as much dignity and financial peace of mind as possible.

When proper coordination is done everyone wins including the public trust How does the state benefit? Many states now have diversion programs to keep those who would otherwise be seeking more expensive nursing care at home or in less expensive facilities. By intervening early with home based and community services outcomes will be better and LESS expensive.

There are several methods to preserve a portion of the patients assets for their use while on Medicaid while still being able to qualify for Medicaid immediately or within relatively short periods of time.

I encourage all of you confronted with these matters to not go blindly down the path of spend down.
You are correct in that gifting within five years of application for Medicaid will create a penalty period of ineligibility. There are, however, exceptions, the over-arching of which is that any expense paid for health, maintenance, and welfare of the applicant is not considered a gift nor is any transfer of assets or payment "for fair market compensation" (in other words the applicant receives something that is a fair market value exchange).

Since you are POA you are permitted (if it so states in the POA, and in some jurisdictions, even if it doesn't) to be compensated for your expenses in the performance of your duties. So yes, auto expenses and any other expenses you incur can be reimbursed to you from mom's assets/income.

Document, Document, Document!

In some jurisdictions you may also be able to create what is known as Personal Services Agreement (aka: Personal Care Agreement, Personal Services Agreement, etc.) which may permit the lump sum transfer of assets in prospective satisfaction of the contract.

BTW...If MN has Home and Community Based Services benefits to assist with ALF costs now is the time to get her on the waiting list as there is certain to be one!
With the numbers of Elderly increasing into the size of a huge tidal wave, this is going to become this country's #1 Epidemic! No tax breaks for those of us taking care of them, no breaks of any kind. This country's family values are going down the sewer.