If you or your parent is over 65, you need to read this now!
Many aging Americans think they are financially well prepared for their “golden years”. Unfortunately, that is probably not the case. Just because your accountant says you are “all set”, you may just want to check again!
In this series, we'll look at common mistakes and misconceptions when it comes to eldercare planning.
Every Gift Counts
Myth 1: You can gift up to $14,000 a year per person with no repercussions.
FACT: This is true for JUST taxes. HOWEVER, if you or your spouse might require nursing home or in-home coverage and plan to apply for Medicaid, any gifts or transfers of assets made within five years (60 months) of the date of application are subject to severe penalties. This is often called the “Lookback Period”. Very few situations get one out of the Lookback period: if you are the spouse of the applicant, a child under the age of 21, a child who is permanently disabled or blind, an adult child who has been living in the home and provided care to the patient for at least two years prior to the application for Medicaid or a sibling with an equity interest in the home who also has been living there for at least one year before the patient applied for Medicaid. And, given the incredible and rising cost of care (see right panel), most seniors should be considering Medicaid as a real option.
Each state has different penalty divisors to determine how long you must pay before being eligible for government assistance through Medicaid. It currently is approximately the cost of one month of nursing home care in your state. Example: you decide you need nursing home care and apply for Medicaid. However, you have been gifting your two children $10,000 a year for the last five years for a total of $100,000. While this money is not taxable, it is considered for Medicaid. Your state has a $5,000 penalty divisor; thus, you will be incurring a 20-month penalty period ($100,000/$5,000). This means Medicaid will delay covering your expenses for the nursing home for 20 months or almost two years!
Many have spent down their money like tax preparers suggest, and are forced to ask for gifts to be returned, sue for the gift to be returned, or for financial assistance from family or friends if nursing home care is critical.
Fact: More than 7 in 10 Americans 65 or older will require long-term care for an average of 3 years.
The team at Gentreo has more than 20 years experience in the eldercare industry. From home care and hospice and private duty to aging in place, they have helped create companies that are changing how Americans care for seniors.