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Q: mother's sale of house and medicaid ( Answered 5 out of 5 stars,   2 Comments )
Question  
Subject: mother's sale of house and medicaid
Category: Family and Home > Seniors
Asked by: da55id-ga
List Price: $50.00
Posted: 26 Aug 2005 11:20 PDT
Expires: 25 Sep 2005 11:20 PDT
Question ID: 560861
The short and sweet question: How can I accept my mom's gift from the
proceeds of the sale of her Florida house and have her immediately
qualify for medicaid in Virginia as she currently does in Florida.

Details:
My 80 year old mother is on medicaid in Florida - other than her house
she has no assets. Her health has deteriorated and she will be moving
to virginia to live with us in early 2006. Florida Medicaid allows her
to keep her house and still get medicaid. Now that she'll be moving,
the sale of her house will net appx. $140,000. She wants to gift the
money to me. We are jointly looking for the best outcome for our
family that is totally legal and legit. We are NOT interested in
anyone's political opinions.

Our preferred outcomes:
Mom moves to Virginia, qualifies for medicaid in Viginia as she did in
FLA. She gifts the money to me and I put it in an account for the
appropriate (what is it) period of time. We name the account such that
if I predecease her the account will pay on death to her (POD) to
avoid probate etc.

I'm hoping for direct/succinct/actionable answers - not long lists of
links. Thanks in advance for helping me untie this gordion knot.

Request for Question Clarification by sublime1-ga on 26 Aug 2005 19:29 PDT
da55id...

This appears to be a sticky wicket, indeed.

This PDF file for advocates of alzheimer's patients, on 
the website of the US House of Representatives, notes:

"The Balanced Budget Act of 1997 made it illegal for lawyers
 to advise clients on how to transfer assets in order to
 become eligible for Medicaid. While the transfer itself is
 legal, lawyers counseling or assisting in this transfer will
 be subject to criminal and civil penalties. This provision
 is likely to be challenged in the courts due to its first
 amendment implications."

And the following discussion specifies applicants for long-term
care under under Medicaid. As to whether the same considerations
apply for eligibility for Medicaid without an application for
long-term care, I don't really know, but it seems likely they
might have considerations along the same lines:

"When a person applies for Medicaid to pay for long term
 care, federal law requires the state to consider recent
 transfers of assets for less than fair market value.
 (These "transfer of asset" rules were changed as part of
 the Omnibus Budget Reconciliation Act passed in August 1993.)

 If a person or his or her spouse has transferred assets for
 less than fair market value in the 36 months prior to
 applying for Medicaid, or at any time after applying,
 the applicant may be considered ineligible for a period
 of time based on the amount transferred and the cost of
 nursing facility care in that state. In the case of assets
 transferred to a trust, the "look back period" is 60 months.

 The penalty period is determined by dividing the amount
 transferred by the average monthly private pay cost of
 nursing home care. The state may use a statewide average
 or a local average. If, for example, Mr. Jones gave away
 $60,000 in January 2001, and the average monthly cost of
 care is $3,000, he would be ineligible for Medicaid for
 20 months, until September 2002. Transfer of asset penalties
 do not apply if an applicant transferred resources to his
 or her spouse (or disabled or blind child) or if the applicant
 transferred the home to certain other relatives under limited
 conditions. If an applicant can show that he or she intended
 to dispose of the resource for fair market value, that the
 resource was transferred solely for a reason other than
 becoming eligible for Medicaid, or if denying eligibility
 would result in an undue hardship, a penalty period may not
 be imposed.

 Advocates for persons seeking Medicaid have contended that
 many states do not fairly consider hardship during the
 eligibility determination process. With changes in federal
 law enacted in August 1993, the state must establish
 procedures for determining hardship, on the basis of criteria
 to be established by the Secretary of Health and Human Services.

 Transfer of assets provisions are established by federal law
 and must be followed by all participating states."
http://www.house.gov/commerce_democrats/medicaidblockgrant/alz-assoc-paper.pdf


If, however, these policies are only specific to applicants
for long-term care, and you mom will be living with you, I 
would think it a possibility that the sale of the property
might not be an issue short of applying for long-term care.

According to this PDF file from the Virginia Employment
Commission, income from the sale of a house is not 
considered to be included in "family income".
http://www.vec.virginia.gov/pdf/tfg0208.pdf


I wish I'd been able to find something more concrete to 
offer you, but I didn't. If I were in your shoes, I'd
consider calling a Medicaid office from a friend's house
and asking the question "for a friend, whose mother is
about to move to Virginia from Florida...", and see what
they have to say.

sublime1-ga

Clarification of Question by da55id-ga on 27 Aug 2005 04:39 PDT
Sulime1_ga - thanks for the clarification request. One of the reasons
I'm asking this question here is that I can get an answer from a
non-lawyer who it would seem would be unconstrained legally from
providing facts critical to our needs = and as you say, legal in all
ways to act upon.

My Mother does not have Alzheimer's - so that is not an issue today.
Our current best approach is to do what I described in my original Q
and wait 36 months to apply for Medicaid. I'm looking for other, more
proactive methods...but thanks for your clarification request. I still
desire an answer :-)
Answer  
Subject: Re: mother's sale of house and medicaid
Answered By: hummer-ga on 30 Aug 2005 18:35 PDT
Rated:5 out of 5 stars
 
Hi  da55id,

Thank you for bringing your question to my attention and I'll try my
best to help you (you can expire/close the $2 question that you posted
for me today).

"The short and sweet question: How can I accept my mom's gift from the
proceeds of the sale of her Florida house and have her immediately
qualify for medicaid in Virginia as she currently does in Florida."

No matter what, your Mom won't be able to *immediately" qualify for
Medicaid once she sells her house. She qualifies now because a home is
not counted as a resource in determining Medicaid eligibility.
However, once it is sold, the money from the sale of the house becomes
part of her assets. Following are at least two things she can do to
reduce her assets in regards to Medicaid eligibility.

1) Resources Exempt from Medicaid

There are certain things your Mom can own and still qualify for
Medicaid, such as a car  (there's no limit as to the value and many
people buy a luxury vehicle. It seems sensible until you think about
how fast cars depreciate) and household and personal items. She'll
also be allowed to have $2,000.

2) Asset Transfers 

It is now legal for your Mom to transfer assets to you in order to
qualify for Medicaid, just don't do it in one lump sum. Assuming an
average monthly nursing home care cost of $3,500 per month, she can
legally gift to you $3,499 per month for 40 months ($138,000 divided
by $3,499 equals about 40 months). Given a 36 month time limit, your
Mom would be eligible for Medicaid in 36 months as long as she doesn't
apply before then.

3) Long-Term Care Insurance

Given your mother's age, insurance probably isn't a viable option.


Long-term Care 
"Many of my clients are extremely worried about the cost of long-term
care. Approximately 40% of all persons over the age of 65 years will
spend some time in a nursing home. Therefore, you should plan for the
payment of this expense. On average, a semi-private nursing home room
costs about $3,500 per month in Virginia. On average, residents live
in a nursing home from 30 to 36 months."
Medicaid is a state administered welfare program that pays for
long-term nursing home care. There are strict income and resource
limitations on the qualification for benefits. In general, to qualify
you may not have more than $2,000 of countable resources. If you are
married, the assets of both the husband and wife are considered in
determining eligibility. Certain assets, however, are not countable.
For example, your home, one car, and a burial fund of $3,500 are not
countable. Additionally, your income over $30 per month is applied to
nursing home charges. Many people attempt to preserve assets and
qualify for Medicaid by transferring their assets to their family. A
gift of assets, however, can result in a period of ineligibility."
http://www.elderlawanswers.com/resources/article.asp?id=604&section=7  

The following link has a good overview of the subject.

Virginia Cooperative Extension Virginia State University
Managing Prosperity: Estate and Retirement Planning for All Ages
Planning for Long-Term Health Care
"The high cost of nursing home care, coupled with the limited
availability of federal assistance only in certain circumstances,
should provoke many individuals to consider methods of paying these
future costs when planning their estate. Many people do not wish to
deplete their estate with nursing home costs, leaving no inheritance
for their loved ones. Other people wish to spend their assets during
life. This publication will outline some basic issues pertaining to
Medicaid assistance eligibility and long term care planning. The
federal and Virginia laws concerning Medicaid fill several books.
Therefore, this discussion is necessarily limited. An attorney who
deals with Medicaid and long term planning issues should be consulted
for more information."
"Finally, the "medically needy" category includes the aged, blind, or
disabled person who would receive SSI or Aid to Families with
Dependent Children payments except that his/her income exceeds a
certain level. This category includes most persons who would consider
long term care planning. For this group, Medicaid coverage is first
predicated on "spend-down." Spend-down requires a person to pay the
costs of a nursing home out of his/her income. He/She is allowed to
keep $30 per month for non-medical expenses. If he/she otherwise
qualifies and his/her income (less $30 per month) does not cover
nursing home costs, then Medicaid covers the remaining portion of the
bill. Eligibility also hinges upon the nursing home resident spending
all "excess resources." Excess resources are nonexempt resources in
excess of $2,000 ($3,000 for married couples)."
"The following resources are not counted in considering eligibility
for Medicaid assistance for nursing home care:
    * the home and adjacent contiguous property so long as the
applicant, the spouse or disabled child resides in the home (The
applicant is considered as living in the home during the first six
months at the nursing home. After six months, unless the spouse or
disabled child resides in the home, or other limited exceptions apply,
the applicant is not eligible until the value of the home is "spent
down." The home may have to be sold, or the family may have to pay for
nursing home care from other resources.);
    * personal effects and household furnishings, except "durable
items" (durable items are not well-defined);
    * one automobile, regardless of value;
    * term life insurance (with limitations);
    * cash value of life insurance, but only if the combined face
value is less than $1,500;
    * "burial space items" (grave sites, crypts, caskets, vaults,
headstones, services incident to opening and closing grave sites, and
services for the perpetual care of grave sites) for the applicant,
spouse, or member of either immediate family, regardless of value
(funds set aside for burial expenses are exempt only up to $2,500);
    * certain income producing property (with limitations);
    * certain lump sum payments;
    * life estates in real property;
    * irrevocable trusts; and,
    * one-half of joint bank accounts held with the spouse. "
Asset Transfers and Medicaid Disqualification
"Virginia law assumes that properties transferred without adequate
compensation (like gifts or below market value sales) were transferred
for the purpose of qualifying for Medicaid benefits. These transfers
may result in a period of disqualification from Medicaid benefits. The
state may consider any transfers within the three-year period
immediately preceding the application for benefits (the "look back"
period) in determining eligibility. If the transfer is made to a
trust, the look back period is usually extended to five years."
http://www.ext.vt.edu/pubs/agecon/448-089/448-089.html

I know you'd rather not have a long list of links, but it's often
helpful to hear something from various sources to gain a better
understanding of the concept. I've copied and pasted some relevant
sections but please click on the links for full details.

How to Impoverish Yourself
"People with assets of more than about $2,000, not counting a house
and car, generally don't qualify for Medicaid payments for nursing
home care. Here are some of the ploys that people use to get around
that.
? Give away all your money. Medicaid only looks at asset transfers
during the previous three years. That means people can give away
hundreds of thousands of dollars to their heirs and qualify for
Medicaid just 36 months later. The drawback is that they can't get
their money back if they end up not needing a nursing home. In
addition, big transfers could be subject to stiff gift taxes.
? Give away half of your money. This common technique, dubbed "half a
loaf," is used by people who need nursing-home care immediately. They
give half their assets to their heirs. The other half of their nest
egg pays for their care during the "penalty period" until they are
eligible for Medicaid.
? Put it in an annuity. "Medicaid annuities," which make people appear
poor, became popular several years ago. They work best for married
couples, who use all their assets to buy an annuity.The sick spouse is
considered impoverished and qualifies for Medicaid-paid care. The
healthy spouse, meanwhile, receives a monthly check from the annuity
company.
? Splurge on your house or your car. Here the strategy is to spend on
assets that generally aren't counted by Medicaid in determining
eligibility. So people buy a new car. They pay down their home
mortgage or they remodel their home.
Lump Sum Transfers
One technique would be for your [parent] to transfer a lump sum to
you. As discussed above, Medicaid looks in the 36 months prior to the
Medicaid application for any transfers of money. Medicaid would take
the amount of the lump sum transfer, divide it by $3,000, and that
would determine the number of months of ineligibility for Medicaid
running from the date of the gift.
For example, if your [parent] were to transfer $30,000 to you, $30,000
divided by $3,000 equals 10. [He/she] would be ineligible for Medicaid
for the 10 months following the transfer. During this time you would
need to be prepared to privately pay for [his/her] care needs.
Monthly gifts
AN ALTERNATIVE TO A LUMP SUM TRANSFER WOULD BE TO MAKE MONTHLY
TRANSFERS OF LESS THAN $3,000. IF YOU TRANSFER LESS THAN $3,000 PER
MONTH, YOU DO NOT INCUR A TRANSFER PENALTY FOR THAT MONTH. THE CHECK
WOULD BE WRITTEN EACH MONTH AND ALSO DEPOSITED INTO AN ACCOUNT SOLELY
IN YOUR NAME. THESE TRANSFERS WOULD CONTINUE UNTIL [HIS/HER] ASSETS
ARE SPENT DOWN TO $2,000. [Emphasis added.]
With either strategy, you must be very careful to not make any
additional transfers to anyone else within one calendar month. If the
total assets transferred in a calendar month equal or exceed $3,000,
then you will have incurred a penalty period."
http://www.efmoody.com/longterm/medicaid.html

The Transfer Penalty
"The second major rule of Medicaid eligibility is the penalty for
transferring assets. Congress does not want you to move into a nursing
home on Monday, give all your money to your children (or whomever) on
Tuesday, and qualify for Medicaid on Wednesday. So it has imposed a
penalty on people who transfer assets without receiving fair value in
return.
This penalty is a period of time during which the person transferring
the assets will be ineligible for Medicaid. The penalty period is
determined by dividing the amount transferred by what Medicaid
determines to be the average private pay cost of a nursing home in
your state. The period of ineligibility starts on the first day of the
month of the transfer.
Example: If a Medicaid applicant made gifts totaling $90,000 in a
state where the average nursing home bill is $5,000 a month, he or she
would be ineligible for Medicaid for 18 months ($90,000  $5,000 =
18).
In theory, there is no limit on the number of months a person can be ineligible.
Example: The period of ineligibility for the transfer of property
worth $400,000 would be 80 months ($400,000  $5,000 = 80).
However, the state Medicaid agency may look only at transfers made
during the 36 months preceding an application for Medicaid (or 60
months if the transfer was made to certain trusts). This is called the
"look-back period." Effectively, then, there is now a 36-month limit
on periods of ineligibility resulting from transfers. This means that
people who make large transfers must be careful not to apply for
Medicaid before the 36-month look-back period passes.
Example: To use the above example of the $400,000 transfer, if the
individual made the transfer on January 1, 2002, and waited until
February 1, 2005, to apply for Medicaid -- 37 months later -- the
transfer would not affect his or her Medicaid eligibility. However, if
the individual applied for benefits in December 2004, only 35 months
after transferring the property, he or she would have to wait the full
80 months before becoming eligible for benefits."
Is Transferring Assets Against the Law?
"You may have heard that transferring assets, or helping someone to
transfer assets, to achieve Medicaid eligibility is a crime. Is this
true? The short answer is that for a brief period it was, and it's
possible, although unlikely under current law, that it will be in the
future."
http://www.elderlawanswers.com/elder_info/elder_article.asp?id=2751

"If your 75-year-old mother gives you and your sister a remainder
interest in her personal residence, she will be making a gift to you
and your sister of 53 percent of the value of her $100,000 home - or
$26,500 each. In and of itself, this transaction will cause a Medicaid
disqualification period that is calculated by dividing the total gift
($53,000) by the average monthly private pay nursing home rate in your
state at the time of the transfer. If, for example, that rate is
$4,000 per month, there will be a 13-month disqualification. While
this transaction will require that your mother file a gift tax return
next year, she will pay no gift taxes under the circumstances you
describe. At the time of her death, you and your sister will receive
what is known as a "stepped-up basis" in the home, assuming your
mother meets the other requirements."
http://www.jewishworldreview.com/0703/nextstep071603.asp

Additional Links of Interest

Medicaid Asset Transfers and Estate Planning Testimony Before the
Senate Committee on Finance
http://finance.senate.gov/hearings/testimony/2005test/jsatest062905.pdf

Transfers of Assets
http://www.cms.hhs.gov/medicaid/eligibility/assets.asp

I was happy to work on this for you and I hope you finally have the
information you were seeking. If you have any questions, please post a
clarification request and wait for me to respond before closing/rating
my answer. Ofcourse you'll want to check with your local offices to
find out the average monthly cost of long term care in your region.

Thank you,
hummer

Google Search Terms Used:

virginia medicaid
virginia medicaid gift
asset transfer rules medicaid
long term care cost comparison
monthly nursing home costs virginia average
asset transfer rules medicaid
medicaid gifting

Request for Answer Clarification by da55id-ga on 31 Aug 2005 11:13 PDT
Here is what I understand from your excellent reply.

My Mother can gift the ~$140,000 to me immediately upon sale of her
house - the gift will be tax free to both of us.

The bank account will be wholly owned by me and would Pay On Death (POD) to her.

She will need to report the gift on her tax return in the tax year of the gift.

The clock for the 36 month Medicaid lookback period begins the day of the transfer.

As long as she does apply for Medicaid during the 36 month period the
gift will be final.

To complete the questions, How much is the average monthly nursing
home allowance in Virginia?

Superb work, and I hope your excellent answer will be of benefit to others.

Request for Answer Clarification by da55id-ga on 31 Aug 2005 11:14 PDT
I meant to say:

"As long as she does ***NOT*** apply for Medicaid during the 36 month
period the gift will be final."

Clarification of Answer by hummer-ga on 31 Aug 2005 12:08 PDT
Dear da55id,

Thank you for your nice note and rating, I'm happy you are happy.
However, I'm alittle bit worried that you've misunderstood something
and I'm about to burst your bubble - I hope not!

1) My Mother can gift the ~$140,000 to me immediately upon sale of her
house - the gift will be tax free to both of us.

No, only in monthly increments. Don't confuse tax issues with Medicaid
issues (sublime-ga posted the tax info, not me). To avoid Medicaid
penalties and large Long Term Care bills, the money must start in her
account and be gifted to you on a monthly basis.  See:

2) Asset Transfers 

It is now legal for your Mom to transfer assets to you in order to
qualify for Medicaid, just don't do it in one lump sum. Assuming an
average monthly nursing home care cost of $3,500 per month, she can
legally gift to you $3,499 per month for 40 months ($138,000 divided
by $3,499 equals about 40 months). Given a 36 month time limit, your
Mom would be eligible for Medicaid in 36 months as long as she doesn't
apply before then.

2) The clock for the 36 month Medicaid lookback period begins the day
of the transfer.

The day of the first gift.

3) As long as she does not apply for Medicaid during the 36 month
period the gift will be final.

Yes. 

4) To complete the questions, How much is the average monthly nursing
home allowance in Virginia?

It varies with the region, you'll have to check locally. At the
following link you'll find a comparison chart and you can see the
difference between Richmond and Arlington.

Long-Term Care Cost Comparison
http://www.gilico.com/LTCcosts.html

Long-term Care 
"...On average, a semi-private nursing home room costs about $3,500
per month in Virginia."
http://www.elderlawanswers.com/resources/article.asp?id=604&section=7  

5) The bank account will be wholly owned by me and would Pay On Death (POD) to her.

I'm not sure where you got this, but not in any of the links I sent
you. The money she gives you will be yours, in your name.

You'll both have an account. Put simply (but you should consult an
accountant for advice), she'll put her $140,000 into her account and
write you a check each month for just shy of the average monthly cost
of a Virginia nursing home in your region. You'll deposit the check in
your account.  She will keep the cancelled checks for proof if needed.
 She will continue doing this until it is all gone (she can keep
$2000), it should take about 40 months (Medicaid will only look at the
previous 36 months from the day she applies for it).

6) She will need to report the gift on her tax return in the tax year of the gift.

Yes.

Best of luck to your both, I hope your mother enjoys many years in
your home and doesn't have to worry about nursing homes for a long
time, if ever.
Sincerely,
hummer

Request for Answer Clarification by da55id-ga on 31 Aug 2005 12:51 PDT
Why can't it be a lump sum transfer? I didn't see a prohibition of
this as long as there's no breach of the 36 mo rule...

Clarification of Answer by hummer-ga on 31 Aug 2005 13:49 PDT
da55id, I believe you are right! For some reason, my brain was
processing what I was reading wrong. I just read it all through again
and I can't see why she couldn't make a lump sum gift. You see, two
heads actually are better than one! I'm sorry if I gave you a bit of a
scare. It still would be a good idea to check with your accountant to
make sure everything is done perfectly.

A bit red-faced,
hummer
da55id-ga rated this answer:5 out of 5 stars
Saved me lots of sleepless nights!

Comments  
Subject: Re: mother's sale of house and medicaid
From: sublime1-ga on 28 Aug 2005 12:51 PDT
 
da55id...

I coincidentally ran across this page from the IRS site
on Form 709 and the Gift Tax, which may be pertinent to
your situation:
http://www.irs.gov/instructions/i709/ch01.html

sublime1-ga
Subject: Re: mother's sale of house and medicaid
From: deringer-ga on 15 Nov 2005 11:30 PST
 
Might want to ask another question about whether the law in Virginia
might be changed to extend the 36-month period to 72 months. Hint,
hint.

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