Gifting Assets to Avoid Medicaid Spend Down – Should I “Give it all away?”

Question:  I am a 65 year old widow who wants to give all my assets to my son to avoid Medicaid Spend Down.  Can I / should I do this?

Answer:  Taking any action, especially something as dramatic as giving all your money away, as part of a long term Medicaid plan should only be done after a comprehensive evaluation by an Elder Law Attorney who can advise you of the many choices which you have and the impact they will have on your life going forward. Your question lacks enough specific details to advise you what is the best planning strategy for you, but I can tell you it would not be to give all of your assets to your son at age 65.  There are many reasons why your idea is a poor one and not well thought out, including:

1. If you make a gift of all your assets to your son, they become his so if he is ever sued or has creditors they can take the assets.
2. What if your son spends the money, how will you support yourself?
3. If your son does not segregate these assets from his other assets, in some states they would become marital property and therefore your son’s spouse could take a large portion of them if your son got divorced.
4. What happens if your son were to die before you? Would his heirs, whether they are his wife or children use this money for you or for themselves.
5. If among the assets you gift to your son is your home, do you realize that it will no longer qualify for any local senior citizen tax breaks, and that when it is sold, your son will have to pay capital gain tax on the proceeds since it is not his principal residence and therefore he does not qualify for the capital gains exemption on your personal residence.
6. If there are assets that have large capital appreciation, on your death your son will have your low basis and have to pay capital gains taxes on the sale, where if the transfer had been structured properly he would receive the same assets on your death but they would have done a “step up in basis” on your death and therefore your son would not have to pay capital gains tax if sold right after your death.

There are many other reasons why your suggested plan is a poor one. However, given that you are thinking about how to preserve your money for yourself and your family at a relatively young age, if you work with a knowledgeable Elder Law Attorney it is possible to implement a plan that will preserve your money for your children, allow you to use your assets for the rest of your life, receive income from the assets for the rest of your life, still qualify for all personal residence capital gain exemption, many senior citizen tax credits, get a step up basis for capital gains purpose upon your death and still allow you to qualify for Medicaid to pay for your nursing home expenses.  These plans are complex, and a good Elder Law Attorney will do a detailed analysis of the impact of each factor based upon your assets, income and reasonable projected time until you will need long term care.  It is very important that when taking any steps to preserve assets from nursing home costs, that you speak with an Elder Law Attorney prior to taking the steps.  Frequently, such actions can have a negative impact upon you and your family. An Elder Law Attorney can usually assist you in achieving your goals while avoiding these negative impacts.  So, I strongly urge you not to gift your assets to your son, but retain an Elder Law Attorney to help you prepare and implement a plan that avoids the negative impact yet still allows you to achieve your goal of asset preservation. Good Luck.

James C. Siebert, Esq.
Arlington Heights, Illinois