How early do you advise retirees to gift funds to family members to reduce their assets before needing long-term care?
christine alsop, elder law practice group leader, TuckerAllen
There is no definitive age to start ‘gifting’ to qualify for Medicaid. Instead, the health and financial status of the individual are the key determining factors. The three ways to pay for long-term care are private funds, long-term care insurance and Medicaid. Medicaid considers the income and resources of the applicant in determining eligibility. Assets that are gifted for less than fair market value trigger a penalty if the gift occurred within five years prior to application. To protect their assets, some people gift their resources and wait five years so they aren’t counted when Medicaid is needed.
Gifting to an individual can create unintended consequences if not part of a well thought-out plan. For instance, gifting highly appreciating assets to an individual could trigger a significant tax liability and cause the senior to lose complete control of the asset.
The preferred method of gifting is through an irrevocable trust. When properly drafted, it will start after the five-year look back at funding, reduce any tax consequences and help protect the asset should an unforeseen contingency occur. It is never recommended to simply start ‘gifting’ assets to children or others. Instead, the best practice is to meet with a qualified elder law attorney to develop a strategy that protects those assets from all unknown contingencies that could happen during the five years.
jonathan krueger, executive director, accelerated wealth
There are many misconceptions about longterm care, Medicaid and how one’s assets should be positioned in advance of possibly needing this care. Catastrophic illness does not always give us a warning. It can come suddenly and the rules can be unforgiving if you don’t have long-term care provisions, like insurance. Both the partner needing the care and the spouse can suffer for the rest of their lives if a plan is not in place years before such an event. If your spouse or loved one suffers a stroke, develops dementia or is simply unsafe alone at home, you could lose everything to the cost of longterm care.
There are numerous gifting strategies that retirees can exercise to reduce their taxable estate over the course of their lives. Since most retirees have neither a crystal ball to see the future nor a process to evaluate their decisions, we would recommend beginning the process by meeting with a fiduciary who has expertise and in-depth knowledge of advanced ‘gifting’ strategies that include investments, insurance and different types of trusts. In today’s fast-paced world, time is precious and working with a dedicated team of experts that has insight in each discipline is critical to securing your future now.
