15 Feb What happens to Medicaid if mom gifts her IRA to her kids?

Q. My mother, who is in good health at 95, asked a question about gifting to her 7 children. She has a small IRA, worth approximately $100,000, that she uses to supplement her income, which is a Social Security benefit of $18,553 a year and a small amount from a reverse mortgage. She would like to know if she were to gift her entire IRA to her children — a little over $14,000 each — would this prevent her from qualifying for Medicaid should she need it?
— Unsure

A. We’re glad you’re asking before she actually needs Medicaid.

The short answer is yes, it will have an impact, but it won’t disqualify her forever.

Medicaid is subject to a five-year “look-back” provision, said Peter McKenna, a certified financial planner with Modera Wealth Management in Westwood.

“If the Medicaid authorities find that assets were transferred without the donor getting something of value in return, Medicaid eligibility can be delayed or denied,” he said.

In order to be eligible for Medicaid, a person needs to have little to no assets — around $2,000, he said.

You mention gifting away the IRA, but you don’t mention if there is any equity in her home after the reverse mortgage liability is quantified, McKenna said.

That also needs to be considered for the asset test.

And importantly, he said, what would the goal be for the gifting?

The issue for your mother is that she will probably want to have some say in which nursing home or facility she goes to if the need arises, McKenna said.

“Many nursing homes have a set number of Medicaid beds and a larger number of `private-pay’ beds,” McKenna said. “If you are going into a facility as a Medicaid patient, you will be limited to facilities that have a Medicaid bed open when you need one.”

Some facilities reserve their Medicaid beds for patients who have exhausted their own assets and long-term care insurance after staying in a private-pay bed for a period of time, he said.

“I think the greatest gift a parent can give an adult child is to be prepared to live out their days with dignity and independence,” he said. “Would her children prefer to have $14,000 of taxable IRA money or would they prefer she use her IRA and home equity to secure a bed in a facility that she is comfortable with should the need arise? That is the first question to address, in my opinion.”

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This story was originally published on Feb. 15, 2023.

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