What is a Gift? Continued

Gift Pitfall #3 - Commingling funds.

Only in New Jersey can a person be penalized for Medicaid by simply living with family members.

Many people, parent's and children, live together as a family. They always lived together. When the children were growing up, the parent's paid the family expenses. Later, when the children became earners, they contributed to the family's costs. What I am saying is that some children never move out.

Moreover, it's hard to realize that its time to stop acting like a family. If, however, the parent's do not separate their income, assets and costs from their children, a Medicaid pitfall results.

When a parent pays an expense of a child, Medicaid treats that payment as a gift. However, a family generally does not account for each persons financial contribution and for each persons respective expenditures. Rarely will you see an accounting breaking down the grocery bill by each family member's consumption. So, when funds are commingled it is hard to track how they are used and can result in Medicaid penalties even though there was no intention by the parent to make a gift.

Aggravating this problem is how the money is actually managed. Sometimes a child gives a parent cash, which is deposited in the parent's account (or not) and used to pay an expense. Sometimes the procedure is the other way around, with the parent giving cash to the child, for the child to pay the expense.

So what is wrong with this story?

Medicaid penalties are based on a very low number, $239.41. If a parent gives that amount of cash, monthly, to a child for the 5 years prior to entering a nursing facility, the penalty is 60 days. If the parent living in the facility has a spouse at home, that spouse will have to use some of her Federally protected funds to pay for the 60 days (which could easily amount to $20,000.00). If the parent is single, the children will have to either pay the facility themselves (hopefully after a negotiation), or wait to be sued.

But it takes thousands of dollars to support a family for a month!

In the end, the family is punished for living like a family and not realizing the accounting problem will result in Medicaid penalties.

Is there a solution? Of course! Parents and children should not commingle funds. If they do, unfortunately, they should get a good accountant, keep every receipt, and hope they are lucky. Finally, for those people who find themselves in the midst of a commingling problem, a Certified Elder Law attorney should be contacted.

What is a Gift? Continued

Medicaid Pitfall #2.

Annual Gifts of $10,000.00 - $13,000.00

There is a commonly known tax law that says a person will not have to pay gift tax if he or she gives away no more then $13,000.00 (in 2010) to any other person, annually. Many people think the annual exclusion is $10,000. However, the exclusion was indexed for inflation several years ago, so the current figure is $13,000.00

This annual exclusion from Gift Tax HAS NOTHING TO DO WITH MEDICAID. The annual exclusion is a tax law, not a Medicaid law.

For example: Mr. Blue gives $13,000.00 to each of his three daughters. Within 5 years of the gift he applies for Medicaid. Mr. Blue is ineligible for Medicaid for 162 days.

Now, many of you reading this Blog may say - "Oh, no, Harold Grodberg is wrong, my accountant told me so, or my plumber told me so, or my lawyer told me so."

It is very understandable getting incorrect advice. As I indicated in my first post - you must suspend reality when thinking about Medicaid. Medicaid is a law unto itself.

In order to avoid people following bad advice, I will outline how gift tax works.

We all have $1,000,000.00 we can give away, while we are alive, free of tax. This is a tax credit against United State Gift tax. If we make gifts of no more then $13,000.00 per head, per year, we do not USE any of the $1,000,000.00 credit. This also means that if a person gives away greater the $13,000.00 to someone else, the person making the gift will use some of their $1,000,000.00 credit. For the record, the recipient of a gift is not responsible for the tax. Gift tax is imposed on the giver not the receiver.

For Example:

Mrs. Orange gives $20,000.00 to her son this year. He is single, has no children, and Mrs. Orange is also unmarried.

Mrs. Orange has used $7,000.00 of her $1,000,000.00 lifetime credit. Which means she can only give away another $993,000.00 in excess of the $13,000.00 annual exclusion before she will actually have to pay "out of pocket" tax.

On the other hand, if Mrs. Orange applies for Medicaid, she will be ineligible for 83 days ($20,000/$239,41= 83).

Don't fall in the trap of confusing laws. There is a difference between Medicaid law and tax law. In fact there are many differences. Just like there is a difference between personal injury law and Medicaid law or Divorce law and Medicaid law.

What is a "Gift?"

Gift Pitfall #1 - Paying for home care "informally."

"Informally" is a nice way of saying, illegally. But in my experience many people pay for their home care, in cash, to a person who is not trained. Many informal caregivers live in the house and receive room and board in addition to a weekly payment.

From a financial standpoint, if a person who needs round the clock care wants to stay in their home, "informal care" is potentially the most cost effect method of paying for the care.

An "informal" caregiver could be paid $700.00 a week. That same week, from a home health aid agency could cost $1,500.00 or more for the week and a nursing facility, in New Jersey, is over $2,500.00 a week.

I wrote earlier that "informal care" could be the most cost effective method of providing care, but there are some compelling reasons to avoid "informal care."

The most compelling reason to avoid "informal care" is because the payments are considered gifts for Medicaid purposes.

For Example: Mr. Green pays $700.00 a week for "informal home care" for the five years before entering a nursing home. He spent $182,000.00 for care over the 5 years. When Mr. Green applied for Medicaid, the County workers asked him for proof of how he spent the $182,000. He has no proof, because he paid cash. If Mr. Green can provide the County with a signed statement from the caregivers attesting to the payments they received, then he will not be penalized. The problem is that most people who get paid illegally do not want to admit it to a government entity.

So, in the end, Mr. Green will be penalized for $182,000/$239.41 or 760 days. He will not be penalized until his assets fall below $2,000.00 so he has no idea how he will pay the nursing home.

Post #1 - Welcome - Time to Suspend Reality

Welcome to the New Jersey Medicaid Pitfalls Blog. It is my intention to provide accurate information to Medical providers and patients regarding Medicaid eligibility in long term care facilities.

One theme that I want to begin with is how to think about Medicaid eligibility. Medicaid is a public benefit program. The basic rules are made by the Federal Government but States actually administer the Medicaid programs.

Unfortunately many people apply common sense thinking to the Medicaid realm. THIS IS AN ERROR. You cannot use common sense when trying to understand Medicaid. For example: According to the State of New Jersey when a parent pays a child's mortgage, that is a gift which results in a Medicaid penalty. If, on the other hand, a child pays for his or her parent's nursing home care, that is not a gift that reduces the penalty from the original gift from the parent.

The next several blog entries will deal with what are actually gifts for Medicaid purposes.