High Risk

When confronted with the threat of $8000 a month nursing home costs, the nursing home resident and their spouse may consider the option of giving assets to their children to save them from depletion by these expenses.  Although it is possible to make gifts and eventually gain Medicaid benefits, it involves risks. Prudent planning can reduce the risks, but they are always present to some degree.

If circumstances are right, with careful planning and good execution, gifts can preserve assets in the family and permit the nursing home resident to receive Medicaid benefits. However, everything must be right in order for it to work.

A successful plan requires trust. Normally gifts involve a parent and child. The parent must trust that the child will use the money to pay the parent’s expenses. The child must be worthy of that trust. If either of these elements fails, then gifting can be a disaster. It is important to review the things that could go wrong.  Only if the parent is comfortable with all of the potential problems should they consider gifts.

The nursing home resident must understand that they have no power to get the money back.  There are three parts to a gift: Intent to make a gift; delivery of the item; and acceptance of it. Once these three things happen, legal title passes to the recipient, and the donor has no right to compel the return of the item.

If the donor retains any interest in the property, then it may not count as a gift, and Medicaid could declare it available to pay for the costs of their care.  This bars Medicaid eligibility. Consequently, to be effective, gifts must be completely unconditional.  This means, under no circumstances, could the parent legally force the child to return the assets.  Therefore, if the gift is unconditionally made, and the parent has improved health, cannot receive Medicaid, wishes to buy anything, or becomes displeased with the recipient of the gift, then there may be no way for the donor to retrieve the item.

Moreover, circumstances could change in the life of the person who receives the gift.  Usually, the assumption is if Mom or Dad needs the money, then the child will either return what is needed or use the gift to pay for whatever the parent requires.  Since the gift is unconditional, though, the child is not obliged to use it for their parent. The child could simply decide that they wish to keep the money.  There are other risks, too, such as debt problems, filing bankruptcy, ill health, dying and leaving the asset to others, selling the asset, a market crash or bank failure, divorcing, gambling the proceeds away, and so on.  Just because a child is stable, in a long-term marriage, debt free, and in good health for decades is no guarantee of the future.

Another risk is that the laws could change. Sound planning today could be disrupted by legislation tomorrow.

Another risk is the hazard of making unequal gifts. Nothing is more likely to cause contention amongst the children than giving one more than another. Quarreling children can make the parent’s last days unpleasant. They can go through the money by suing each other, they may quit seeing the parent, and they may become less inclined to be generous to their Mom or Dad who gave them the money in the first place. If the parent wishes to make unequal gifts, or completely cut a child out of the process, then they are taking a big risk regardless of the circumstances.

Before considering gifts, the donor must be aware of these risks and be comfortable with them.  The donor should feel 100% confident that their child will use the money for the parent if necessary. The donor should only proceed if these conditions are met.


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