There are several misconceptions that I hear from clients on a regular basis. I thought I would take the time to write about several of the misconceptions I hear from clients most often.
“But won’t the nursing home take my parents’ home?” Clients believe that once they enter a nursing home, they have to turn their home over to the nursing home immediately as payment for the services that the nursing home is rendering to them.
Most nursing homes are private businesses. Monmouth County owned two nursing homes in the recent past; however, the County sold these homes, so in the immediately area, I know of no nursing homes that are owned by the government. Nursing homes bill residents on a daily basis. In the immediate area, nursing homes cost anywhere from $350 to $450 a day. Nursing homes issue a bill on a monthly basis. For example, if Mr. Smith were in a nursing home costing $400 per day and left the facility on the fifteenth of the month, then he would receive a bill for fifteen days times the daily rate of $400, or $6,000.
Now, if Mr. Smith entered a nursing home costing $400 a day and he lived in the nursing home for years, he might, from a practical standpoint, have to “pay his home to the nursing home,” but that is not the same thing as turning his home over to the nursing home. For instance, if Mr. Smith owned a home worth $200,000 and the nursing home cost $12,000 a month, then it would take approximately seventeen months before the entire value of the house would be paid to the nursing home. But this is not the same thing as Mr. Smith turning his home over to the nursing home.
Finally, there are things that Mr. Smith could do to save some of his money from the nursing home. A large part of my practice is helping people save money and qualify for Medicaid sooner than they would if they failed to plan. This concept is called Medicaid planning.
Another misconception that I hear all the time is that the Medicaid lookback period is seven years. Medicaid is a health payment plan for needy individuals. In order to qualify for Medicaid benefits, an individual must have a limited amount of resources, typically below $2,000. To prevent people from simply giving away all of their assets and qualifying for Medicaid soon thereafter, the Medicaid program punishes people for giving away their assets.
Medicaid only looks at transfers made during a certain period of time, commonly known as the “lookback period.” Medicaid only wants to punish those transfers/gifts that were designed to qualify for Medicaid benefits, and from a policy standpoint, Congress said that only transfers made during the lookback period were transfers that were made in order to enhance the individual’s eligibility for Medicaid benefits. This period of time is the five years immediately preceding the date of application. The lookback period has been five years since 2006. Prior to 2006, the lookback period was three years.
Ever since Congress made the lookback period five years in 2006, clients have been telling me that they heard the lookback period was seven years. I have no idea where clients get this misconception, but I have heard it many times so it is a pervasive misconception.
The lookback period is five years, not seven. Period. Bur from a practical perspective, banks are only required to maintain certain records for five years, so I doubt Congress could ever extend the lookback period beyond five years because an applicant simply couldn’t get records from the bank.
Finally, clients constantly ask me about the gift limit. Most people believe they can only give away $10,000 or $12,000 or $15,000 a year. Many are uncertain about the figure but they believe there is some amount of money they are limited to giving away in a given year.
The truth is a person can give away $15,000 a year without reducing their $11,580,000 lifetime exclusion against gift tax. In other words, unless you give away more than $11,580,000, you would never pay gift tax. Since most people don’t have $11,580,000, most people would never pay gift tax.
Knowing the facts about elder law prevents costly mistakes. Being informed ensures your estate plan truly meets your needs and protects your loved ones.
Misunderstandings can lead to decisions that don’t fully align with reality. When common assumptions go unchallenged, the outcome may look very different than expected. Taking the time to revisit those ideas can lead to better clarity.