Ep. 33 - Medicaid Gifting: How to Avoid Pitfalls and Protect Your Assets

Don't make this costly mistake. Medicare, Medicaid, and managing your money can be confusing territory. Tune in to this episode with Elder Law Attorney Bob Mannor & Amy Persails, Planning Services Director at Mannor Law Group, and walk away with a deeper understanding of these complex systems that could save you or someone you care for thousands of dollars. 

Bob & Amy clear some of the confusion between Medicare and Medicaid, breaking down the critical differences between the two. They also unpack the nitty-gritty of the 'look back' period, discussing how a significant money gift, or even paying for care, in the past five years could lead to penalties.

As we journey further into the labyrinth of Medicaid planning, Bob and Amy discuss the crucial role timing plays when considering gifting and warns not to confuse gifting for Medicaid with gifting for IRS or gift tax purposes. 

Above all, Bob & Amy stress the importance of guidance from a certified elder law attorney in your Medicaid planning journey. This is a conversation you can't afford to miss.

Host: Attorney Bob Mannor
Guest: Amy Persails
Executive Producer: Savannah Meksto

Chapters

• 0:00 Medicare and Medicaid
• 12:06 Strategic Gifting and Medicaid Planning

Transcript

Amy Persails: 0:00

You're listening to advice from your advocates a show where we provide elder law advice to professionals who work with the elderly and their families.

Attorney Bob Mannor: 0:10

Welcome back to advice from your advocates. I'm Bob Mannor. I'm a certified elder law attorney in Michigan. I'm really excited about our podcast for today. So we have Amy Purcells, the planning services director Law Group Manor . Welcome, Amy, thank you. So, Amy, what is a planning services director?

Amy Persails: 0:31

good question. I am majorly responsible for Medicaid, making sure that we get everyone qualified for Medicaid and overseeing our elder care coordinators, our social workers in the office that are helping with life care planning so, basically, we do both the legal and the financial and the care advocacy and you're kind of in charge of all of that, right, yep?

Attorney Bob Mannor: 0:59

And so we have some social workers and care navigators and you are sort of their boss, yes, okay, so today our topic is a very important one because there's a lot of confusion around this, and so we're gonna focus on Medicaid. So for those that have listened, often, you know the difference between Medicare and Medicaid, but if this is the first time you're listening, let's describe what's the difference between Medicare and Medicaid.

Amy Persails: 1:27

So Medicare would be a benefit that you get once you're 65.

Amy Persails: 1:32

There are other ways to get it but, once you're 65 and you collect Social Security, you get the Medicare benefit, so it's deducted from your Social Security benefit. It's a health insurance program that you sign up for. You can change yearly in October and you know, just use as your health insurance. You can get supplemental plans and things like that, and then you know that's. That's basically the just of Medicare, right. And then Medicaid is a government program just like Medicare, but it is more for people who need help paying for care. They need care in the nursing home. Depending on your income, you could get a in-home assistance.

Amy Persails: 2:23

Sometimes even independent living or assisted living all those programs, depending on if they qualify or the, the Independent or assisted livings work with that program.

Attorney Bob Mannor: 2:35

We'll probably do a new podcast about that program and the income limits at another time. We heard some encouraging news recently that we they might change those income limits, which would be a real benefit for the seniors in Michigan. But the difference between medic? I'll give the example of my parents. My father had open heart surgery. It cost hundreds of thousands of dollars. He paid almost nothing out of pocket, right, because Medicare paid for the vast majority of it a government benefit. I want to make that clear because sometimes people say, oh, I don't want the government paying my bills. Well, guess what? The government does pay your bills if you have open heart surgery now? Blue Cross paid a portion of it, but only probably 20%, and Medicare paid about 80% of hundreds of hundreds of thousands of dollars. My mother, on the other hand, had Alzheimer's and she needed care too, but Medicare paid nothing for that. Blue Cross paid nothing for that. So Medicaid is also an insurance program, also an insurance program that you've paid into all your life and Unfortunately you have to jump through more hoops to qualify for Medicaid Right, and your job one of your jobs, among others is to help people jump through those hoops, exactly so that we make sure that you don't have to go broke or lose all your money or impoverish your spouse or your family because you have Alzheimer's or dementia instead of heart disease. Yes, unfortunately.

Attorney Bob Mannor: 3:57

So we're going to focus on one particular rule, and this is one of the confusing rules of what we call gifting. So sometimes the word gifting, or that I call it the G word, because I don't want people to do gifting. So let's talk about gifting and I'll give you my standard story. This was many years ago. I went to get my haircut at the barber shop. My barber at the time was, I think, 90 years old and a great guy loved him. I haven't seen him in a few years, but he retired, obviously.

Attorney Bob Mannor: 4:31

But somebody came in and they were saying because this is what men do sometimes we go to barbershops and talk to each other, and so especially old men and so we ask this guy comes in and he's talking to me, my barber, where I'm sitting in his chair, and he says well, I don't know what to do about mom, she can't live alone anymore. I don't know what to do. We don't know how to pay for this, I don't know what we're going to do. And the barber said well, I'll tell you exactly what to do. This is the barber, not me. Yes, the barber says just take all the money she has left over, take it out of her account, put it in your account, or put it in a gun safe, or something like that, and then you apply for Medicaid and everything will be fine. Amy, what do you think of that? Answer no, no, please don't do that.

Amy Persails: 5:23

It causes so many problems later. It's fraud first of all. Right. You go to jail for that. It's just not the way to go. There's much better planning in ways that we can help with those types of things.

Attorney Bob Mannor: 5:40

Because basically, what we're getting at is that there is a couple things that we have to make sure that unpeople understand. There is a look back. So what is the look back? What does that mean?

Amy Persails: 5:51

So, and then the last five years, if you've given away any of your assets. Or tried to hide them, or tried to hide them, then you're subject to a penalty for Medicaid purposes. So if you're trying to get that Medicaid benefit because you're paying for a $15,000 month nursing home, you are subjected to that $15,000 penalty and if you gave away a substantial amount of money, all of that could go towards someone's going to put that bill.

Attorney Bob Mannor: 6:26

Yeah Well, in fact it could be worse. It could be that the penalty is worse than if you had just kept the money and paid for it on your own, that the penalty is actually bigger than the money that you tried to save.

Amy Persails: 6:37

Yes, yes, because some facilities cost $15,000 and the penalty is only based on a smaller amount of that.

Attorney Bob Mannor: 6:44

Why do we? Why don't we just not tell them about it?

Amy Persails: 6:49

Because again, that's fraud.

Attorney Bob Mannor: 6:51

And you could go to jail. And they have this thing called asset verification. Yes, so guess what? The government, for better or worse, sees everything and they can and they do see do. Whenever anybody applies for Medicaid, they're gonna do what's called asset verification. And In my mind I'm sure this is not how it really works, but in my mind there's some super computer somewhere and they put your name and self-security in there and they see every financial Transaction you've done in the last few years and they will see that you took money out.

Amy Persails: 7:21

Yes, yes, and I mean all of those things will come back and and you have to answer to them. And even if you've applied before, or you applied this time and it went through what it was, fine, the next time it may not, so and there's other branches of the government that could find it later.

Attorney Bob Mannor: 7:39

So right happens to and we we often see this. We're dealing with this, with this asset verification, all the time. Right, because they'll find things that don't even exist. Not only do they find the things that did happen, they'll find things that, well, okay, well, you had this account Two years ago. Where'd that money go? And usually, when it's our clients, the answer is well, we were paying for care, we were paying for our life, and we spent that money and we can prove it right, and so that's okay. But that's how thorough that asset verification is. Okay, well, what about? Why can't we just make up a story and say that we lost the money at a casino or something like that?

Amy Persails: 8:19

that's frog right and that's not something you should do. But you know if, if the government, when you turn in bank statements and they go back through that super computer and check things out, they can see if a casino is something that you normally do. You know they can see your transaction histories, they, they look at all those types of things and if you are saying you went to the casino one time, of blue are your money, they're, they're likely, you know, to be very skeptical about that.

Attorney Bob Mannor: 8:52

Well, not only skeptical. I think the presumption is that you have to prove it. So I have two responses to that. One is to talk about how you have to prove what you say is accurate, and then I have a little story to tell about super computers. So it's unrelated but it's playing story. So our interesting story to me.

Attorney Bob Mannor: 9:11

So the first thing is that I always say this, that in Medicaid that you're guilty until you can prove yourself innocent. You don't. When you say, well, how do they know I didn't just go to the casino, the answer is they don't have to know, they just have to raise the red flag. They just have to say what happened to this money and then it's the applicant's job to prove what happened to that money. That's why we either have to document things properly or handle things correctly with regard to checks and things like that. We don't like people dealing with cash transactions because the unless you kept a receipt, you might not be able to prove that. So the idea is, even when you're doing things right, they might question you and you can't prove that you what you did with the money. So their presumption is it's a gift unless you can prove otherwise. So you're guilty until you can prove yourself innocent. It's not like criminal law. You're applying for a benefit they, if they challenge it, you have to prove it wrong.

Attorney Bob Mannor: 10:07

So it made me laugh when you talked about the supercomputer. My dad Worked at GM and he was one of the first people to work on computers back in like the 50s, and so the first computer he worked on that it was some kind of super computer at the time which I'm sure probably has the capacity of our cell phones are lost, probably significantly lost, and it took up like a city block. That's what the computer took up and it was this considered the super computer. There were like five of them in the world. He got to work on it in the 50s, but I'm sure that it doesn't even have the capacity of you know of any Technology we have today. So I just thought that was fascinating, but you Okay, so let's get back to the topic. All right, so dealing with gifting. Is there ever a situation where we might use gifting as a strategy that it would be legal?

Attorney Bob Mannor: 11:04

For us as attorneys yes, and you don't mean us gifting, you mean us giving advice.

Amy Persails: 11:10

Yes, correct. Yes, clients come into us all the time. We do give them advice on gifting, but it's strategic gifting, which means that you have to do it at a certain time. I had a client yesterday questioning me well, why can't I just give away you? Know you're telling me I could give away this amount of money. Well, no, I don't know the amount until it's that time.

Attorney Bob Mannor: 11:36

Yeah, that's a good point.

Amy Persails: 11:37

So I really don't have those numbers until it's time to actually apply and send in the qualifications for the Medicaid. And we have to do it strategically. It has to be done a certain way. You have to do an exact amount, so you have to. You know, I have to go through all the numbers and it takes quite a while to get through all those numbers and determine what the best option is for you.

Attorney Bob Mannor: 12:04

So that's a very good point. The timing of it almost always it's not in advance. Most people would assume oh, you want to give the money away in advance, before you need that care. Problem with that is then you don't know how much money to give away. And if you give away too much or too little it's going to cause problems because there's consequences, there's penalties for gifting. So when we talk about strategic gifting we're saying, okay, it's going to be more financially favorable to incur that penalty, but we have to make sure we don't incur too much or too little of a penalty. And the only way to do that is to do it when we're ready to file the Medicaid application. Okay, so we're not doing it in advance.

Attorney Bob Mannor: 12:48

It seems very counterintuitive. Almost everybody would assume that you can't gift after you move into the nursing home. The reality is that's exactly the time that we knew that. And it doesn't mean nursing home. It could be home care or assisted living or any of those types of things. But the idea is the timing is critical. And then the other part, which is extremely difficult to figure out, and we've got a system to do that is exactly how much, and it has to be very precise, we talked about threading a needle. This is like I don't know how it could make that worse Mixing metaphors. Threading a needle in a haystack you first have to find the needle and then you have to thread the needle. It is extremely complicated and nothing that I would ever advise people to do on their own. I can't imagine how somebody could do it on their own without years of experience and expertise in this.

Amy Persails: 13:36

Yes, takes me hours.

Attorney Bob Mannor: 13:38

Yes, exactly. And you've been doing it for how many years? Nine, nine years, all right, what about? My accountant or my financial advisor told me that I can give away a certain amount every year, whether it's 10,000 or 16,000 or whatever, that I'm allowed to give away that money every year. So that's right. I don't have to tell you about that, right? No-transcript.

Amy Persails: 14:00

No, that's not right.

Attorney Bob Mannor: 14:04

So for accounting purposes, for your taxes for the IRS income tax.

Amy Persails: 14:10

Right for income tax. Yes.

Attorney Bob Mannor: 14:12

And gift tax.

Amy Persails: 14:14

Sure you could do that and that only really benefits you if you have more than $12 million. So if you have more than $12 million, it doesn't benefit you anyway. It's not going to If you have less than $12 million Right there's no gift tax in the state of Michigan unless you have more than $12 million.

Attorney Bob Mannor: 14:34

So here's how this works Basically. They have something called and this gets a bit complicated, so stay with me they have something called a unified credit, and the unified credit is that you can give away, currently up to $12 million either during your lifetime or after your death, and so they have to keep track of that. And so if you give away some money, you have to report it to the IRS so they can subtract it from the $12 million that you're allowed to give away either during your lifetime or after your death. But then they say, oh, but there's a certain amount you can give away every year that you don't have to report to the IRS, and I think that might be 16 or 17,000. This year it was 10,000 for so many years, so that's why people come up with that 10,000.

Attorney Bob Mannor: 15:16

But the reality is that has nothing to do with Medicaid.

Attorney Bob Mannor: 15:20

So technically, if you give away $1,000, that could be a penalty for Medicaid.

Attorney Bob Mannor: 15:24

Okay, now there's some exceptions to that rule and you can talk to us about the exceptions, but the general rule is, if you give away $1,000, you'll get a $1,000 penalty, or possibly more than that associated with, or a time penalty associated with, giving that money away, if you've given away within five years of needing Medicaid meaning nursing home, home care, assisted living, those types of things and so I get it.

Attorney Bob Mannor: 15:49

I understand why we still have bankers and financial advisors and accountants and your neighbor and the barber all saying, oh, you can give away a certain amount every year because the IRS says you can. But we're not dealing with the IRS, we're dealing with Department of Health and Human Services, which doesn't care what the IRS rules are. They've got their own rules. So giving away any money is not exempt for Medicaid. It might be exempt for IRS or gift taxes. Okay, so as sort of an overall question, do you think it's a good idea to give away money, to hide it or to try to give it away so that you don't have to worry about spending down for Medicaid?

Amy Persails: 16:30

No, never, unless you're working with a certified elder law attorney, someone that's experienced in Medicaid planning, and you want to make sure that you find a good attorney that can help you and guide you through all of that.

Attorney Bob Mannor: 16:46

So very good. And the key on this is, I think you should always ask. So ask us if you have a need to give away some money. And sometimes I'll say, okay, well, if we can prove that it's not to hide money or it's not to avoid the Medicaid rules, things like that.

Attorney Bob Mannor: 17:06

Sometimes there's a way to do that. So, for example, if you give a certain amount to your church every year and we can show that you consistently did that, we can show that you did not do that for Medicaid purposes, and so again it goes back to that rule that they assume you're guilty until you can prove yourself innocent. So how would we prove our self innocent in that we can show we've been doing it for years, if you've given a certain amount to your kids or grandkids for Christmas every year and we show that you've done it year after year. Now if the year before you go into nursing home, or two years before you go into nursing home, you give, you used to give away 50 and now you give away 1000 each of them, no, they're going to say that's not a pattern of gifting.

Attorney Bob Mannor: 17:45

Occasionally there are circumstances that we can say, okay, well, that's okay, you know, if you've got $2 million and you want to give away $20,000, that's different than if you've got $100,000 and you want to give away $1,000, it really is different. They're going to treat it differently and so the less you have, the less likely it is that you can give it away without penalty penalty. So well, thank you, Amy, for explaining all of this. This has been very helpful and interesting, and thanks for listening to advice from your advocates. Don't forget to subscribe. You can subscribe at our website, mannorlawgroup. com, or any place that you listen to podcasts. You can subscribe and you'll get notices of our future podcasts. Thanks for listening and we'll see you next time.

Amy Persails: 18:40

Thanks for listening. To learn more, visit mannorlawgroup. com.