Will Paying Rent to My Son in Advance Affect My Medicaid?

This is an important question, and it’s a common area of confusion. It appears you are asking about how a large financial transfer could affect your eligibility for benefits.

It’s crucial to clarify the distinction between Medicare and Medicaid, as they have very different rules regarding assets and eligibility.

• Medicare is a federal health insurance program for people age 65 or older and certain younger people with disabilities. It is not a needs-based program. This means that your income and assets, including the money you transferred to your son, do not affect your eligibility for Medicare coverage (Medicare Part A, B, and D). However, your income can affect the premium you pay for Medicare Parts B and D.
• Medicaid is a joint federal and state program that provides health coverage to people with limited income and resources. It is a needs-based program. Medicaid is the program that has strict rules about assets and financial transfers, especially when a person needs help paying for long-term care, such as nursing home care or in-home care.

How the Transfer Affects Your Eligibility

The $200,000 you transferred to your son will not affect your Medicare eligibility. Your eligibility for Medicare is based on your age and work history, not on your assets.

However, if you ever need to apply for Medicaid to help with the costs of long-term care, the transfer of funds will be a significant factor.

Medicaid has a “lookback” period, which in most states is five years (60 months). When you apply for Medicaid for long-term care, the state will review all financial transactions you made during this period.

• The Problem: The $200,000 you gave your son may be considered a “gift” or a “transfer for less than fair market value.” Even though you had a rental agreement, it would likely not be considered a legitimate business expense by Medicaid because you were prepaying many years of rent. Medicaid may assume you transferred this money to qualify for benefits.
• The Penalty: If Medicaid determines that the transfer was made to reduce your assets, they will impose a penalty period of ineligibility. The length of this penalty is calculated by dividing the amount you transferred ($200,000) by the average monthly cost of a nursing home in your state. This could result in a long period where you would be ineligible for Medicaid and would have to pay for your long-term care out of pocket.

Key Takeaway and Next Steps

1. Don’t worry about your Medicare. Your eligibility for Medicare is secure.
    
2. Be aware of Medicaid. If you think you might need to apply for Medicaid for long-term care in the future, the transfer of funds to your son – which have now transferred to his wife – could create significant problems.
    
3. Consult an elder law attorney in your area. This is the most important step you can take. An elder law attorney can help you understand the specific rules in your state and advise you on how to best protect your finances and your future care. They can help you with strategies such as creating a promissory note with your daughter-in-law to formalize the pre-payment of rent, which may help with a Medicaid application.

Disclaimer: This information is for educational purposes only and is not legal advice. The rules for Medicare and Medicaid are complex and can vary by state. You should consult with a qualified legal professional to discuss your specific situation.