Making gifts is a double-edged sword for the elderly client. On one hand, a gifting plan can help pare down a large estate that will face estate tax liability, or can preserve assets for a client who anticipates a lengthy nursing home stay. On the other hand, the state of Maryland often imposes penalties on Medical Assistance (Medicaid) applicants who have given away significant assets in the five years preceding their application. Recent changes to Medical Assistance policy, however, provide some “safe harbors” from these penalty rules.
Some background for the uninitiated: Medical Assistance is Maryland’s state Medicaid program. For individuals who require skilled nursing services or health-related services above the level of room and board, Medical Assistance Long-Term Care often acts as the payer of last resort–once a nursing home patient exhausts his private funds, Medical Assistance picks up the difference between the patient’s countable income and the cost of care. Federal law requires state Medicaid long-term care programs (including Maryland’s Medical Assistance Long Term Care program) to review the past five years of an applicant’s financial history for gifted assets—assets transferred for less than fair market value. The caseworker reviewing the application then assigns a penalty period–a period during which Medical Assistance will not pay for the applicant’s care–that corresponds to the amount of gifted assets. In Maryland, the penalty period is one month of nonpayment for every $6,800 in gifted funds. The rule is meant to discourage people from intentionally impoverishing themselves to qualify for benefits.
Maryland regulations, consistent with federal law, specifically exempt gifts “made exclusively for a purpose other than to qualify for Medical Assistance” from being penalized. Until recently, it was unclear how an applicant could establish past gifts fit into this category, and it often put the applicant in the difficult position of trying to prove a negative. However, in Maryland Medicaid Manual Release 159, effective 3/1/2013, the Department of Health and Mental Hygiene clarified its policy on these types of transfers. MR-159 states that no penalty will be imposed for:
– Transfers made before the traumatic onset of a disability;
– Contributions to household expenses, as evidenced by a written agreement or an oral agreement ratified and restated in writing at a later date;
– Charitable contributions or traditional gifts to family members/close friends of up to $200, or any amount if there is a consistent pattern of giving; or
– Payment to help family members or close friends with documented medical or educational expenses
This is not an exclusive list, and these are just several examples contained in MR-159. Additionally, MR-159 clarifies what kinds of evidence must be submitted to demonstrate the purpose of the transfer–the applicant must submit written evidence such as bills, affidavits, written agreements, or oral agreements restated in writing at a later date.
The takeaway: While elderly individuals should still be wary of making substantial gifts without consulting an attorney or tax adviser, MR-159 injects sorely-needed common sense into Medical Assistance policy on gifting penalties.