A. I have $600,000. I transfer $360,000 to you. I apply for Medicaid. Currently (2001), the State determines that $360,000 would have bought ($360,000 / 6779) = 53 months of nursing home care. I am therefore disqualified from Medicaid assistance for nursing home care for a "penalty period" of 53 months. And, I have to pay a CT gift tax of 6% x 360,000 = $ 21,600.
So, I have retained about $218,400. I set that amount aside to pay for my residence in an assisted living facility at $4000/month x 53 months = $212,000.
Bear in mind that, after those 53 months, I would still be disqualified from receiving Medicaid until I "spend down" to meet the Medicaid asset test: I can own no more than $1600 of assets. In addition to the $1600, I can I own an irrevocable funeral contract ($5400 statutory max) and a life insurance policy with a face value of $1500.
Meanwhile, remember that you have to pay income tax on any earnings received while you own the $360,000., at your income tax rate, not mine.
B. Now, let's say that after making that gift to you, I do not apply for Medicaid, but I wait one year. I learn that my age and health are such that I am fairly certain I won't live 53 months. I have spent (4000 x 12) = $48,000 for assisted living and have $170,400 left.
So, I then make another gift to you of $40,000. (That's a total of $400,000 which I have given you in a period of 366 or more days). I pay another $550 in CT gift tax.
I continue to live in my assisted living residence but do not apply for Medicaid, since I know I've made substantial gifts in the past three years and would be ineligible. I wait two more years. (Three years have now elapsed since my initial gift of $360,000).
Now, I apply for Medicaid. I have to disclose only the gift of $40,000. (The previous gift occurred more than 36 months ago). So, using the State's current formula, I am disqualified from receiving Medicaid for (40,000 / 6779) = 6 months.
After paying two years of rental ($96,000, assuming the rental has not changed) for assisted living, I still have $ $33,850 left, and I use that to continue paying for residency. Assuming the rental has not changed, that will buy 7 months of further residency at ($4,000 x 7) = $28,000.
C. So, in all, over a period of three and a half years, I have
- transferred $400,000. to you, relinquishing ownership, growth and income tax responsibility
- paid $22,150 in State gift tax,
- left myself ineligible for Medicaid for a total 42 months, but
- reserved funds to pay for 43 months ($172,000) in an assisted living facility.
I am left with $ 5,700. I use some of that to buy an irrevocable funeral contract for $5400, and end up with less than the $1600 amount of assets that enable me to qualify for Medicaid.
Obviously, this example does not apply to everyone. Your own health and medical needs may be significantly different from mine. It may be inadvisable to give away so much property leaving yourself ineligible for Medicaid for such a lengthy period. The cost of health care is increasing. The cost of living in an assisted living facility is increasing and may not include the cost of purchase or entry fees, medical care, food, clothing, travel, etc. Moreover, the law and the regulations are extremely complex and continually changing. This example, therefore, should be viewed as nothing more than an outline or illustration of the type of planning that is involved in coordinating long term care with gift and estate planning.