How to Choose the Right Kind of Gift for Medicaid Planning

1. The first option is to gift and wait 5 years. Give away most or all the money to a child or children. Because of the value of the assets, you would not be able to apply for Medicaid for at least 5 years after the last asset was gifted. The sooner the gifting is done, the sooner the 5 year waiting period starts. Waiting even one extra month can cost you as much as $8000 to $9000 in nursing home costs.

Benefits:

* If make gift when the look back period is 5 years, should lock in no more than a 5 year wait, even if the look back period is increased.

* Can protect most or all of the assets as long as no one goes into the nursing home within 5 years, which can be used later for extras if one does go on Medicaid.

* Avoids probate and maybe estate taxes at the death of one or both spouses.

* Preserves an inheritance for the children and/or grandchildren.

* Is a very simple plan, easily understood. Somewhat less costly in legal fees to plan ahead.

Risks:

* Giving away assets and the control of those assets. No guarantee that the assets will be available later.

* Children may spend the assets, refuse to give them back, have creditors that attach the assets, die and leave the assets elsewhere, divorce and assets end up in the ex-spouse's hands.

* Can cause tax issues, like having to pay tax on liquidated retirement plans and annuities or capital gains tax on the sale of the house by the children later.

* Can avoid some of the children's risks by having children establish a Family Asset Protection Limited Liability Company (FAPLLC) to hold the gifted assets. Any one of them can give money back to parents, but they have to all agree to take money for themselves. At the end, the money splits to all the children equally.

* More complicated to have FAPLLC and more tax returns.


* May not know if and when either one or both spouses will have to go to the nursing home, so knowing how much to gift can be a problem. If you gift too much, you may run out of money. If you gift too little, there will still be excess money left to spend after someone enters the nursing home.

2. The second option is to wait and see, and gift only if and when needed because someone HAD to enter a nursing home. Since gifting is only done at the time needed, a penalty period is created and Medicaid will not be available for some period of time. This is crisis planning that can't be undertaken until someone is actually in the nursing home or is going in very shortly.

Benefits:

* Don't have to make gifts until absolutely necessary. Keep ownership and control of the assets until that time. If you never go to the nursing home, no need to gift.

* retain retirement money and appreciated assets so that there is not the same kind of tax issues as gifting assets currently, and preserve a basis increase at death that will benefit the children.

* Since the plan is only at crisis time, we know which spouse is actually in the nursing home, and can more easily determine the amount and timing of the gift.

* Protect as much as one-third to one-half of your assets even after someone enters the nursing home.

Risks:

* Giving away assets and the control of those assets. No guarantee that the assets will be available later.

* Children may spend the assets, refuse to give them back, have creditors that attach the assets, die and leave the assets elsewhere, divorce and assets end up in the ex-spouse's hands.

* Can cause tax issues, like having to pay tax on liquidated retirement plans and annuities or capital gains tax on the sale of the house by the children later.

* Can avoid some of the children's risks by having children establish a Family Asset Protection Limited Liability Company (FAPLLC) to hold the gifted assets. Any one of them can give money back to parents, but they have to all agree to take money for themselves. At the end, the money splits to all the children equally.

* More complicated to have FPALLC and more tax returns.


* More complicated to have to calculate the exact amount of assets to gift and the exact amount of assets to loan. Must have children sign promissory note and make monthly payments. Required to file for Medicaid in order to be denied and begin the penalty period. Then, must re-apply later to actually receive Medicaid.

* Protect only one-third to one-half of your assets even after someone enters the nursing home.

The final decision is up to you.