Gift legends and myths about nursing homes, Medicaid and taxes

We began writing about estate planning and elder law topics almost 13 years ago because we kept hearing people recite laws and rules that either did not exist or did not work the way people thought. Even some lawyers have misunderstood rules about gifts and some, unfortunately, continue writing estate plans without understanding the rules.

Will The Nursing Home Take Your Home Or Farm?

People tell us that they don't want a nursing home to get their homes or farms. The fact is that nursing homes want to be paid for health care services, but they don't want your home, farm, or business. However, the average Indiana price tag of over $68,000 for a year in a nursing home causes many people to sell their homes, farms, and businesses to pay the bill. If you sell your house and spend all your money on nursing home care, Medicaid will pick up the tab and pay the nursing home bills for you.

Most unmarried nursing home residents must sell their homes and reduce the value of their assets to $2,000 before Medicaid will begin paying their nursing home bills. If you are healthy and your husband or wife is in the nursing home, you can keep the home, the contents of your home, farm land, rental properties, a car, and more than $120,000 worth of other assets. The transition into Medicaid is complicated and an unwary person can lose a fortune without proper planning. A married person should seek professional guidance as soon as his or her spouse enters the nursing home.

Can You Give $10,000 To Your Kids?

Many people tell us that they know they can give $10,000 (an old value that is now indexed to inflation and is $14,000 in 2015) to their kids when we begin speaking about nursing homes. This legend started with in federal gift tax law. Essentially, wealthy people (folks who have wealth worth more than $5.43 million or have given away enough that the gifts and remaining wealth would exceed $5.43 million today) must file gift tax returns for gifts. However, they can make gifts of up to $14,000 per year to each beneficiary without filing a gift tax return. If you are not one of those people, there is no relevant $10,000+ value that pertains to you.

Must You Make A Gift 5 Years Before Entering A Nursing Home?

A common legend involves the 5-year "look back" period. Remember that Medicaid pays nursing home bills for people with resources (basically, wealth) worth less than $2,000. If you gift away assets or sell things to people for less than fair market value, the gift or discounted sale (for example, selling a home for $1 is a discounted sale that is mostly a gift) will disqualify you from Medicaid eligibility to pay nursing home bills. Medicaid requires disclosure of gifts and discounted sales during the previous 5 years before your Medicaid application. The length of the disqualification period depends on the value of your gift (divide the total of all gifts during the preceding 5 years by the state average monthly nursing home cost, which is $5,733 in the spring of 2015, to calculate the penalty in months and parts of months). The present law prevents Medicaid from "looking back" from the date of admission to the nursing home to the date of a transfer if the transfer was made more than 5 years earlier.

Jeff R. Hawkins and Jennifer J. Hawkins are Trust & Estate Specialty Board Certified Indiana Trust & Estate Lawyers and Jeff is a Fellow of the American College of Trust and Estate Counsel. Both lawyers are admitted to practice law in Indiana, and Jeff Hawkins is admitted to practice law in Illinois. Jeff is also a registered civil mediator and the 2014-15 President of the Indiana State Bar Association.