Okay, before you younger folks role your eyes, this is something that you could possibly have to deal with one day with a parent / loved one. The issue of Medicaid came up from a conversation I had recently. This person and their 85 year old Mom had attended a Lunch lecture hosted by an attorney recently. The topic was how to protect your assets from healthcare expenses. The basic premise of the "lunch lecture" was to scare the attendees to death that medical costs were going to devastate Mom or Dad's assets leaving nothing for them to pass to the kids or grandkids. To solve this problem they needed to do Medicaid Planning with the attorney and he/she would show them how to get money out of Mom's name and not have it subjected to nursing home expenses, hence Medicaid would kick in and cover.
This person then went on to talk with their Insurance guy and then their local Financial Advisor, and everyone gave such different advice about what product would solve all the issues, that they left even more confused.
I am not going to jump into the "ethical/moral" issue of getting rid of assets to qualify for a taxpayer funded program that is probably the biggest hot button item here. But wanted to simply share the story and give you some basic facts about Medicaid and break down this case a little more.
- is a joint Fed/State funded health insurance program for the poor and indigent and the default nursing home program for many.
- eligibility means you can have a house and basically $2000 to your name.
- there is a 5 year lookback period for asset gifting.
So the idea behind Medicaid planning, at least for this "lunch lecture" was get assets out of Mom's name as quickly as possible (to avoid 5 year lookback) because she will spend everything on a future nursing home. And why do that when you can make yourself appear poor and have Medicaid pick up the tab?
So what are the issues? Number 1 was that this person was stressing out over what very well could be a non-issue. Mom had a Long Term Care insurance policy with a several year benefit and she was very healthy and independent. My first thought was that there would be a 90% chance that Mom's assets would be fine. Statistically, the average stay in a nursing home is not much over 2 years before someone passes away.
The Number 2 issue, was if Mom gifts assets to you - you lose the step up in basis which comes with inheriting assets. So your cost basis is the same as Mom's and could be a decent size tax bill.
The Number 3 issue, what if Mom gifts all of her money away to family members and then decides she wants or needs money? Are the family members going to save it for her? And what happens when Mom gives away her money to kids and the kids get divorced, get in a lawsuit (sued) or blow it in Vegas?
Summary: The purpose of this was to simply share with you an issue that you may have to confront one day. As with all financial issues you can logically plan around them or do things spontaneously and suffer the consequences later.