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Elder Law Center One Essex Street Saugus, Massachusetts 01906 Telephone 781.233.4444 Fax 781.231.2222
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November 30, 2006
RULES TO CONSIDER PRIOR TO MAKING GIFTS This week I’d like to tell you about a recent law change that affects seniors. The problem with this law is that the government forgot to tell you about it! Last week the Massachusetts Office of Medicaid, also known as MassHealth, issued a memorandum outlining their interpretation of the latest Federal changes to Medicaid. On February 8, 2006 the Deficit Reduction Act (DRA) was signed into law by President Bush and it contains sweeping Medicaid changes for unwary seniors. The most significant changes deal with the new restrictions on gifts made by seniors. The DRA was passed when the Republicans controlled both the House and the Senate. All the Republicans voted for it and all the Democrats voted against it. It passed by the slimmest of margins with Vice-President Cheney casting the deciding vote. We are hoping that the Democrats, now in control of both the House and Senate will undo this change. Most, if not all, seniors are unaware that any gift they make could come back to haunt them. When it comes to making gifts to family and friends, how much can you give away? Many seniors think the answer is $10,000 per person, per year. That is a gift tax rule and has nothing to do with Medicaid. Gifts over this amount result in a taxable gift. The $10,000 amount was increased to $11,000 and last January was increased again to $12,000 per person, per year. So, does that mean its ok to give away $12,000 to family and friends each year? For Medicaid purposes, the answer is no! Before I get too far, you need to understand that these new rules apply only to those who face nursing home placement and are seeking MassHealth (Medicaid) to pay for their care. Unfortunately, with many nursing homes charging over $300 per day, many seniors will run out of money and need MassHealth coverage for their nursing home care. The new rules say that if you made a gift within the last 5 years and need nursing home placement, a penalty period will be imposed and the penalty period will not begin until you are in a nursing home and have less than $2,000 in assets. Here’s an example: Example: Bob is 70 years old. He sold his home for $400,000 on March 1, 2006 and moved into an elderly housing complex. Bob gave his two children $100,000 each upon the sale of his home. On December 1, 2006 Bob’s health declined and went to Happy Trails Nursing Home who charges $325 per day. The $200,000 that Bob retained will be enough to pay for about 21 months of nursing home care at which time he will have less than $2,000 remaining. This will be the time that the penalty will commence for having gifted $200,000 to his children. This means that the children will have to return the gifted money back to their father or he will face discharge for non-payment. Under the rules that were in effect prior to February 8, 2006, the children could have kept the $200,000 and Bob would have been eligible for MassHealth after he spent the $200,000 that he kept. This was known as a half-a-loaf, where seniors could give away about half of their assets and keep the other half to pay for the disqualification period for having given the other half away. The half-a-loaf is no longer is a viable planning option. Advance planning is now necessary to protect any of your assets in the event that you need nursing home placement. And by advance planning, I mean transferring assets out of your name at least 5 years before you need MassHealth coverage for nursing home care. For the middle class, President Bush and the Republican led Congress decided that if you need nursing home care you should be required to spend all of your assets on nursing home care and not be allowed to leave anything to your children. We are hoping that the new Democratic majority in the House and Senate will reverse this change. This article gives general information and not specific advice on individual matters. Persons wanting individualized advice on matters discussed should contact an advisor experienced in those matters. To the extent this article provides information on legal matters, it is based on law in effect in Massachusetts on the date of posting (laws in effect in other states are often quite different). Ronald H. Surabian is a CPA and attorney who works at the Elder Law Center in Saugus, Massachusetts. He also holds Masters in accounting and a Masters in tax law. He currently serves on the board of directors of the Massachusetts Chapter of the National Academy of Elder Law Attorneys. If you have any questions please call me at the Elder Law Center, One Essex Street, Saugus, MA 01906 (781)233-4444. To view this or any prior article, please visit our web site at www.elderlawcenter.org
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