Charitable Giving and Medicaid Issues

Charitable Giving and Medicaid Issues

Article posted in Compliance on 30 August 2011| comments
audience: National Publication | last updated: 12 September 2011
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Summary

What do charitable giving and Medicaid have in common? As it turns out, quite a bit. Writing on behalf of the National Academy of Elder Law Attorneys, Springfield, Massachusetts lawyer Hyman Darling, CELA discusses the issues that surround individuals making charitable gifts while maintaining their ability to qualify for Medicaid payments and the ability of charitable donees to keep such gifts.

By Hyman Darling, CELA

As is common with many elders, they wish to make gifts and transfers to various charities during their lifetime.  They may make gifts throughout their lives of stock, cash, life insurance, etc.  Many people however are not interested in making significant gifts during their lifetime as they may “need” the funds.  As they become older, they may become more attached to a charity, or they may have been solicited and realized that they now wish to make a larger gift.  It may also be that they realize they do not need the funds any longer that they have accumulated, and they are willing to make either an outright gift or a planned gift, such as a gift annuity or a charitable trust. 

It is at these times, that when a person makes a gift, in most states is that a gift or transfer made without adequate consideration causes a look back of up to five (5) years in order to qualify for Medicaid.  Therefore, a gift that is made within five years may carry with it this restriction that the gift, although a completed gift, may be looked at by a Medicaid office in a jurisdiction that will question whether the gift was made as part of a lifetime giving plan or program, or if this was a single gift in order to spend down assets in order to qualify for Medicaid sooner than later. 

In many jurisdictions, gifting of funds to charity may be looked as disqualifying transfers, but if there have been significant gifts given over years, the Medicaid authority should review the gift and determine that it is not made as an intention to spend down to qualify for Medicaid, but rather, was a gift given as part of the intention of the donor to continue to make gifts even through incapacity.  Similar to this strategy is when a person may be working or receiving other assets and determines that they wish to give a weekly or monthly gift to a charity, such as tithing.  Most Medicaid offices have agreed that gifting to charity in this situation is not construed to be a disqualifying transfer, and therefore, the person would continue to qualify for Medicaid and not be forced to ask the charity to return the gifted assets.  In many cases, this would be a significant hardship for the charity since they may have spent the funds or allocated them for some purpose, and giving back five years’ worth of assets may be a significant liability to the charity since they have determined and believed that these assets were without restrictions and were completed gifts without any “strings”. 

In many cases, so long as the person who is making the gift is not on their way to the long-term facility, the person will probably be construed to have made a gift which should not be challenged.  When in doubt, a request can be made from the physician attending the donor that at the time of the prior gifts, the client was competent, of sound mind, and was not disabled to the extent that they may require institutionalized care in the near future. 

In many cases, the agent serving under a Power of Attorney for a Donor has the authority to maintain the gift giving program to family as well as charities, and within the document itself, the agent has the authority to maintain the charitable gifts made while the principal was alive and competent to do so.  Their intentions are well thought out within the Power of Attorney to allow these gifts to be made, and these gifts should be respected by all Governmental agencies.  Certainly, they are construed to be gifts for income tax purposes when taking the gift as a deduction on the income tax return as an itemized deduction.  However, the IRS could in fact challenge that gift if there was no authority within the Power of Attorney itself to allow transfers and gifts to be made. 

A questionable gift may be the situation where a person has pledged to make a gift but has not yet complied with the fulfillment of the gift.  In this case, the pledge may be construed to be a contract to make the gift, and the Power of Attorney may be acting within the authority to complete the payment of the pledge even if the Power of Attorney document itself does not allow for gifts to be made as this gift may merely be a completion of the contractual terms in fulfilling the obligation of the donor to the charity. 

In any questionable situation, a charity should review the status of the gift when a Power of Attorney or other Fiduciary may be making a gift, and the charity is aware that the principal has become incapacitated to the extent that they are unable to make legal and financial decisions for themselves.  The charity should verify that there is a situation where either the principal has sufficient funds to pay for themselves for five years or that the life expectancy of the donor may be short enough that there will be sufficient funds to pay for the care of the donor for the balance of their lifetime.  If not, the charity may be asked to return gifts so they should not place them in an irrevocable endowment fund or expend those funds for permanent expenditures such as renovations or additions to a building where the funds may not be able to be returned.  In these cases, it may be that an applicant for medical assistance through Medicaid would ask for a hardship waiver since the gift would be difficult to be returned, if at all.  In these situations where the donor may not be 100% competent, it may well be that the charity should check with the accountant and attorney for the donor before the gift has been allocated to a specific fund.


Copyright 2011. Hyman Darling, CELA. All rights reserved. Used by permission. For further information about the National Academy of Elder Law Attorneys and to find a Certified Elder Law Attorney in your area, visit www.naela.org.

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