We all do research on the internet and can obtain useful information that way.However, when it comes to a complex topic like Medicaid, it is not advisable to proceed without expert advice. The internet is packed with generic advice that may not apply to your situation. In addition, sometimes the advice is simply bad advice given by someone who does not know what they are talking about. In the same vein, be wary of advice you get from well-meaningfriends and colleagues. Even if they have had a situation similar to yours, there may be significant differences in facts and outcomes. In addition, the law is changing all of the time and what was true then may not be true now. You should also be aware that although Medicaid is a federal program, it is administered by each state and there are significant differences in how states will treat the same situation.
One of the most common misconceptions we hear is that you can transfer $14,000 (or sometimes $10,000) a year to someone else without suffering a Medicaid penalty. That is not true. Each person is allowed to gift $14,000 a year for gift tax purposes. However, for Medicaid purposes, any amount that you transfer can be counted against you.
Everyone has heard about the infamous 5 year look back period. To be specific, if you apply for nursing home Medicaid, the Medicaid agency will look back 5 years to see if any uncompensated transfers (gifts) were made. If they see any such transfers, they will penalize you for making them. The penalty is the number of months that you will not be eligible for Medicaid. The penalty is computed by dividing the fair market value of the assets transferred by the average monthly cost of a nursing home in your region as determined by the Department of Health. By way of example, if $100,000 is transferred and the average monthly cost of a nursing home is $10,000, the penalty is 10 months (100,000 / 10,000 = 10).
Does this mean that you cannot apply for Medicaid if you have money? No. First of all, the penalty period only applies to nursing home care. Thus, if for instance, you need home care, there is no penalty period. Furthermore, even if the individual is about to enter a nursing home, there are still planning opportunities that can be used in most cases to reduce the penalty period and preserve substantial assets. We cannot go into detail here but some of the techniques that could be used would be combining a promissory note with a gift and exempt transfers.
We should also note that you can spend whatever amount of money you want as long as you receive goods or services at fair market value in return. Some examples might be paying for home repairs, clothing and furniture.
We have seen some people bankrupt themselves paying for care when they did not have to do so. The internet (and friends) can give us valuable insights but when it comes to a complex subject like Medicaid; you are better off getting expert advice.