Gift Pitfall #3 - Commingling funds.
Only in New Jersey can a person be penalized for Medicaid by simply living with family members.
Many people, parent's and children, live together as a family. They always lived together. When the children were growing up, the parent's paid the family expenses. Later, when the children became earners, they contributed to the family's costs. What I am saying is that some children never move out.
Moreover, it's hard to realize that its time to stop acting like a family. If, however, the parent's do not separate their income, assets and costs from their children, a Medicaid pitfall results.
When a parent pays an expense of a child, Medicaid treats that payment as a gift. However, a family generally does not account for each persons financial contribution and for each persons respective expenditures. Rarely will you see an accounting breaking down the grocery bill by each family member's consumption. So, when funds are commingled it is hard to track how they are used and can result in Medicaid penalties even though there was no intention by the parent to make a gift.
Aggravating this problem is how the money is actually managed. Sometimes a child gives a parent cash, which is deposited in the parent's account (or not) and used to pay an expense. Sometimes the procedure is the other way around, with the parent giving cash to the child, for the child to pay the expense.
So what is wrong with this story?
Medicaid penalties are based on a very low number, $239.41. If a parent gives that amount of cash, monthly, to a child for the 5 years prior to entering a nursing facility, the penalty is 60 days. If the parent living in the facility has a spouse at home, that spouse will have to use some of her Federally protected funds to pay for the 60 days (which could easily amount to $20,000.00). If the parent is single, the children will have to either pay the facility themselves (hopefully after a negotiation), or wait to be sued.
But it takes thousands of dollars to support a family for a month!
In the end, the family is punished for living like a family and not realizing the accounting problem will result in Medicaid penalties.
Is there a solution? Of course! Parents and children should not commingle funds. If they do, unfortunately, they should get a good accountant, keep every receipt, and hope they are lucky. Finally, for those people who find themselves in the midst of a commingling problem, a Certified Elder Law attorney should be contacted.