Southwest Florida's Health and Wellness Magazine Health and Wellness Articles
By Jennifer M. Tenney, Esq., Woodward, Pires & Lombardo, PA, Elder Law Attorney
As many people begin thinking of where to spend their last years in comfort, many see an assisted living home or in-home nursing care as a possibility, even a probability. Most people also worry whether their savings will be enough to pay for the care. Assisted living care in Florida costs an average of $3,150 per month, but can be significantly higher, depending on the level of care needed and the luxury of the home, often going up to $8,000-$10,000 per month. As people begin to worry, they often think the solution is to gift their assets to their children or other family members, hoping that will allow them to “preserve their assets” and enable them to qualify for Medicaid to pay for their care, however, there are significant risks and detriments to gifting as a Medicaid planning or long term care planning strategy.
First, when you apply for Medicaid, the State of Florida looks back 5 years from the date of application, and if you gave away assets without compensation, even to your spouse or children, you are disqualified from receiving Medicaid, even after you’ve spent down to the asset and income limits. There is a penalty period that is calculated based on the amount of the gift, and the penalty period runs from the date of application forward. So, for example, If you apply for Medicaid on June 1, 2020, the State of Florida looks at all of your records from June 1, 2015 forward. Let’s say in February 2017, you gave your daughter $100,000, hoping to “protect it.” The penalty period would be $100,000/$9485=10.54 month penalty period. The penalty period does not start when you made the gift in February 2017; the penalty period starts after you submit the Medicaid application. So your application will be denied and then after 10.54 months, you can reapply for Medicaid. But during those 10 months and a half months, how will you pay your living and care expenses? Most people gift to their children with the understanding that the children will use the money on their parents if they needed it, however, once a gift is made, the gift is complete and the children or gift recipients are not required to keep the money unspent or to use it on their parents’ behalf. Further, if there is one well spouse and one sick spouse, you cannot just transfer all the assets in the well spouse’s name for Medicaid qualification purposes because the State of Florida looks at the assets of both spouses in calculating whether you qualify for Medicaid.
There are additional problems that can be caused by gifting, beyond delayed qualification for Medicaid. Under Florida law, your homestead property has significant protections from creditors and property tax advantages. If you gift your homestead to children or others, and the people you transfer the home to do not use the home as their own homestead, it loses the constitutional protection from creditors. Creditors of your children can then attach to the home. In addition, your homestead property tax benefits may be lost by gifting the property. Further, when you gift real estate or personal property, you lose the “step up” in basis your heirs would have gained upon your death. (For example, if you have an investment property you purchased for $100,000 that is now worth $200,000, and you gift the property to your heirs, their basis in the property is still $100,000; if they sell it for $200,000, they are taxed on a $100,000 gain. Whereas, if you die still owning the property, your heirs will get a step up in basis and have a basis in the property of $200,000 and if they sell it for $200,000, no tax will be owed.) Other problems can occur from gifting to a child if that child subsequently gets divorced; the assets you gifted may or may not be considered a marital asset subject to being split. In addition, your child’s creditors can now access the assets you gifted them so if your child gets sued or goes through bankruptcy, the assets you gifted may be lost.
There are very effective ways to plan for qualifying for long term care, taking into account your assets and potential needs in the future, which you can discuss with your elder law attorney – planning techniques including special needs trusts, qualified income trusts, transforming assets into income through rental properties or annuities, and other strategies. Gifting outright in many cases can be detrimental and counterproductive, so look that gift horse in the mouth before giving all your money and assets away in anticipation of the need for future care.
ABOUT THE AUTHOR
Jennifer Tenney has been at Woodward Pires & Lombardo since August 2005. She specializes in Elder Law, Estate Planning, Probate, and Real Estate.
Jennifer is a Marco Island native. She graduated from Lely High School as salutatorian before going on to graduate summa cum laude from Rollins College and with honors from Duke University School of Law. She and her husband, Derek have been married for 16 years and have an 11-year-old daughter, Dakota.
Jennifer is also very involved in the community. She is a graduate of Leadership Marco and is a Past President, Treasurer and Secretary, and current Director of the Marco Island Noontime Rotary Club. She is also a Zumba Instructor at the Marco Island YMCA, Current Treasurer and Past President of the Board of Directors of the Marco Island Charter Middle School, Race Director of the Marco Island Half Marathon Bridge Run/5k, Cookie Mom for her daughter’s Girl Scout Troop, and a member of St. Mark’s Episcopal Church.
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In 1971, Arthur V. Woodward founded the first law firm on Marco Island which emphasized the importance of a superior work ethic, collegiality and respect among our peers, and a social conscience that commands participation in opportunities for the good of the public. These guiding principles formed the tradition of excellence that the attorneys at Woodward, Pires, & Lombardo, P.A. work hard to uphold today.
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