Follow Kara Linkedin Twitter Facebook
Email Kara Email
Legal Issues
Jun 1, 2018

What’s the Penalty Applied by Medicaid for Gifts or Transfers?

Sponsored Content provided by Kara Gansmann - Attorney, Cranfill Sumner & Hartzog LLP

When seniors and their families are planning for long-term care, a common question that arises is, Why can’t we just start giving our money or assets to our loved ones or family members now? 

In a common scenario, a parent may decide to give real estate – like a primary residence or a family beach house – to family members with the belief that divesting of the property will aid in Medicaid eligibility.   Depending on the circumstances, however, there may be many good reasons to avoid this kind of uncompensated transfer. 

Any such gift should be avoided if there is any possibility that (1) the senior may need long-term care in the five years following the transfer, and (2) the senior cannot afford to pay for long-term care for the five-year period. If the senior cannot afford to pay for long-term care for roughly five years, the senior may need to rely on other sources, like long-term care insurance, Medicaid or Veterans benefits to defray costs. 

Because some conditions like a stroke cannot be anticipated and may require nursing care, outright gifting is not generally a primary strategy for Medicaid eligibility because of the concern of creating a penalty during the five years before a Medicaid application (called the “look-back” period). Currently, the Veteran’s Administration does not impose any look-back penalties, but those rules could change.

If a Medicaid applicant has gifted or transferred property within the five years preceding a Medicaid application, Medicaid could assess a penalty. The penalty is usually assessed for gifts or transfers that were made for less than fair market value. 

Under North Carolina Medicaid rules, the penalty is calculated by dividing the monetary value of a gift by 6,300. So, if a parent gifted her children with a beach house valued at $630,000 and the children did not offer the parent any money in return for the gift, a penalty of 100 could be assessed if the parent applies for Medicaid within five years of the gift. 

In the beach house example, the penalty of 100 equates to 100 months that the parent would have to wait for Medicaid to cover the costs of care after the parent is otherwise eligible for Medicaid. While this penalty period is lengthy, the timing of the penalty becomes significant because the penalty can only start when the parent has $2,000 in assets and needs nursing care. In these circumstances, the senior will have to rely on children or other family members to wait out the penalty period. 

If the penalty period is not a big enough deterrent, there are other reasons to avoid gifting. Sometimes, a parent seeks to gift a house to children, but the parent wants to remain in the home and pay for the taxes and insurance on the home. Insurance companies may not allow the parent to keep an insurance policy in the name of the parent on the grounds that the parent no longer has a legally insurable interest in the property. 

Finally, gifts could result in unintended tax consequences. The parent’s gift of a beach house could require a gift tax return by the parent. The gift could also mean the children lose the parent’s stepped-up basis in the value of the property, which might create capital gains taxes when the children sell the property.

Because planning for long-term care can present complex rules, seniors and their families should consult an elder law attorney for help with planning.

Kara Gansmann is an attorney in the Wilmington office of Cranfill Sumner & Hartzog LLP, where her practice encompasses elder law and estate planning. Kara advises individuals and families with estate planning needs and asset protection tactics. In this role, she strategizes with clients to preserve assets for long-term care and to leave legacy gifts to family members. Kara works with elderly clients in need of Medicaid crisis planning and Medicaid applications. As part of her practice, Kara drafts wills, trusts and powers of attorney. In the courtroom, Kara represents clients in the administration of estates, guardianship/incompetency proceedings, and guardianship administration. Kara also litigates estate and trust matters, including will caveats, the modification or termination of trusts, and litigation arising from estate documents or fiduciary roles. She is a member of the North Carolina Bar Association Elder Law and Special Needs Section and serves as co-chair of the CLE Committee for that section.  Kara also serves as a liaison between the North Carolina Bar Association Elder Law and Special Needs Section and the North Carolina Bar Association Estate Planning and Fiduciary Law Section.                     

Other Posts from Kara Gansmann

Wbj insights revised 0510 121615113531
Ico insights

INSIGHTS

SPONSORS' CONTENT
Jasonpathfinder3

What You Need to Know About SECURE 2.0 and Its Effect on Retirement Plans

Jason Wheeler - Pathfinder Wealth Consulting
Pfinder john zachary

What You Need to Know About SECURE 2.0 and Its Effect on Individual Retirement Accounts

John B Zachary - Pathfinder Wealth Consulting
Unknown 7112393341

Why Feasibility is Paramount to Success

Holly Segur - Lead Intuitively – Corporate Coaching

Trending News

New Hotel Proposed Along Market Street In Ogden

Emma Dill - Mar 15, 2024

Businesses Reopen A Week After Grace Street Facade Collapse

Emma Dill - Mar 15, 2024

Tech Upskilling Cohort To Host First Wilmington Class

Audrey Elsberry - Mar 15, 2024

In The Current Issue

INFO JUNKIE: Jack Fleming

Jack Fleming, owner of Socialry Marketing & Scourz and emcee for 1 Million Cups Wilmington, shares his media and tech picks....


Berries, A Battlefield And More In Pender

The N.C. Blueberry Festival, founded in 2003, is one of several events in Pender County that have drawn more attention over the years....


Expanding Tastes On Castle Street

As John Willse and Beth Guertin, owners of Wilmington Wine bottle shop and now the recently opened Creative Tastings restaurant on Castle St...

Book On Business

The 2024 WilmingtonBiz: Book on Business is an annual publication showcasing the Wilmington region as a center of business.

Order Your Copy Today!


Galleries

Videos

2023 Power Breakfast: Major Developments