5 year reach-back question

Situation:  An elderly parent gifts an adult child a substantial sum of money to pay off child's credit card debt.  At the time of the gift, the elderly parent and his spouse are in reasonably good health.

Questions:   What are the implications of the 5 year reach-back for both parent and child if the elderly parent or the elderly parent's spouse ultimately need to be put in a nursing home for continuous care?  Would the parent be required to exhaust all assets including his house before Medicaid support would become available?  Would the child be required by law to pay back the gift to support the parent in the nursing home?

I hope I've laid out the situation and the questions clearly.  Please ask if clarifications are needed.

It generally disqualifies the person from Medicaid the number of months remaining on the 60 (5 Years) at the time of the application.  The parent would still be required to exhaust all non-exempt assets down to a value of $2000.00.  The most common exempt asset is the home, assuming their is a spouse living in the home or a reasonable expectation of returning to the home.

This is a very general answer.  For more specific, consult with an elder law attorney.

The details are beyond me--but are pretty draconian--its a 5 year lookback from the date of application for Medicaid--and a large gift  likley creates a massive time frame of future disqualification --yet a gift made 5 years and 1 day before application is "safe" so sometimes it pays to wait out the time frame before application. I think the disqualification time is LONGER than suggested above --it runs from date of application forward, not the earlier date of gift.

In hindsight there were probably smarter ways to pay off the debt ---by creating an obligation to pay it instead of paying it as a gift

The rules as to not counted assets--such as a home --require attention to details --and there may be ways to preserve such assets (but stay clear of the folks who sell miracle cures at a high price for such "information.")--a spouse living in the home probably protects it --and might a long term live in care giver under some condition where the care giver provided for multiple essential functions. (The rules provide a bit of an incentive to try to delay instutional care by home care --but details count.)  .

As above, one would need to be quite impoverished, down to counted asset level of about $2000

And applicant would need to have a rather low counted income stream --in some cases SS could be put into a trust to help bring counted income levels down

Groups such as AARP probably have some very useful guides on points--do some homework ---but for anything that is not crystal clear--double check with a seasoned elder care attorney.   And above all do NOT make application for Medicaid or fill out a bunch of financial forms for some care facility until you are quite sure you understand the applicable rules.

What is being ignored here is the question of intent.  Was the gift made in order to qualify for benefits?

It is being "ignored" because it presumed under the law that the gift was with the intent to qualify for benefits if it was made within the 5 year look back provision.

Doesn't really matter---a transfer for less than adaquate consideration (such as a gift) is almost always  a disqualifying event if inside the lookback window --at least as I read it.

Now had parent  been a co signor for the card/debt there clearly could be a legal duty to pay --but thats not apparently the case. .

It may be presumed.  But it is a rebuttable presumption.

What about the adult child who was the recipient of the gift?  Is he required by law to return the gift or pay for the parent's care up to the value of the gift?

I'm up for learning how a cash gift inside the 5 year window can pass muster --nobody said it was a fraudulent transfer .

But this may be close to moot if the gift was relatively modest?  The individual state  rates for Medicaid vary  but lets say it was $10,000 /m

Now if parent paid off adult childs CC with a gift of $10,000 anytime in last 60 months, as I understand it, the parent  would be disqualified for a mere 1 month  post the date of application, if that was only issue

Now if parent paid off $1,000, 000 of adult child's debt in last 60 months  that could be a royal problem!

I doubt one has a legal duty to return a true gift.

And if that gift is a big problem under Medicaid I'd sure NOT return it w/o careful discussion with counsel as a literal read of many rules suggests it would NOT wipe out the paper problem!

I presume you are not addressing a fraudulent transfer and nothing in your post suggests it was any such transfer.

"I doubt one has a legal duty to return a true gift."

I was inclined to think that myself.  (There is no intent to conduct a fraudulent transfer in this case.  The parent simply gave money to an adult child with a truly substantial debt.)  Anyone know definitively?

Drew:

I'm up for learning how a cash gift inside the 5 year window can pass muster --nobody said it was a fraudulent transfer .

No idea where anything having to do with fraud entered the discussion.

Here is a decision by an ALJ in a New Jersey case that I came across recently:

http://www.dvanarelli.com/blog/wp-content/uploads/2010/10/R.C.-v.-DMAHS-decision-10-28-10.pdf

The usual wording in the statutes/regulations is that the transfer must be exclusively for a purpose other than qualifying for medical assistance in order not to be considered a disqualifying transfer.

The initial agency review will likely consider any transfer for less than fair market within the look back period to be a disqualifying transfer.  However, the applicant can rebut that presumption by presenting clear evidence that the transfer was not for the purpose of obtaining benefits.

The poster here does not provide enough information to hazard a guess if a rebuttal has a chance of success.  But, that the donor was in "good health" at the time of the gift is at least a kernel in a possible rebuttal.

I see your point--but its not necessarily a reliable point for OP---

Thats a bit of a technical hair split by NJ Administrative Judge and might carry little or no weight  as to OH matters--and we have no clue if its identical fact pattern. --and I'm NOT a lawyer.

I agree both OP and case cited seem quite clear large gift was made earlier with no logical tie to seeking to  qualify for Medicaid, parents were healthy etc, sudden health change etc. . 

But a critical factor in the NJ case was the  reliance upon IF the events were reconstructed then the applicant still would have been under the counted asset limit to  qualify for Medicaid . They took a loan against home which is an uncounted asset  to make a gift to children .

Had there been  a different fact pattern like applicant merely cleaned out a hefty savings or CD account to make a similar large gift we might be reading a different outcome.

Thanks for all the replies!

Overall, I get the feeling that reach-back is designed strictly to punish the individual trying to shelter his/her wealth from expensive health issues.  The recipient of the "gift" is not directly affected legally though the expectation may be that said recipient will feel compelled to use the money they received to help the now sick donor.

 Its not so much punishment oriented but anti abuse orientedfor a needs based program.

There is no expectation built into this that the gift recipient is obligated to help the now impoverishd person--thats not in the equations.

Now if it were a fraudulent conveyance some might argue that such could be ordered reversed--but that NOT what you posted.

I see some room for moral weight when a person gave away assets in good health  for some logical reason  and then sometime later thier person health hits a big rock --but I see some logic to a  fixed time line that says safe on one side and prove it if on other side.

There is also a NJ decision disallowing a scheme where folks loaned out funds to kids so as to impoverish themselves --loans sure looked like shams without economic substance designed to drain out the coffers. 

I think the decision sort of just said the money was imputed to still be there--tough luck for parents intent on dirty pool.