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The new Medicare drug benefit includes subsidies that could be worth several thousand dollars a year to people with low incomes and few assets. As a result, it raises an intriguing question:
Should I give money away if my income is low enough but my assets aren't?
About 2.4-million people will be in that situation, according to the Kaiser Family Foundation.
Asset limits vary with the three levels of subsidies, but the most allowed to qualify for any subsidy is $11,500 for an individual and $23,000 for a couple. About two-thirds of Medicare recipients have more than that, which is no surprise since many seniors have been lifelong savers.
In counting assets, Medicare is primarily interested in assets that could be converted easily to cash, such as bank accounts, stocks, bonds, mutual funds and retirement accounts, plus real estate other than a primary residence. A home, a burial plot and personal property such as cars and jewelry are specifically excluded.
That means if your income is low enough, you could qualify for the drug benefit by giving your countable assets to your children or to other relatives or friends. You don't even have to be subtle about it since the Medicare rules have no prohibition against impoverishing yourself in order to qualify.
However, giving money away to get the drug benefit could backfire if you later need nursing home care. The gifts might make you ineligible for Medicaid, which pays nursing home bills for those who qualify.
The problem is that Medicaid has a "look-back period," which penalizes applicants for any gifts made in the three years before application (five years if you are using a trust.) Eligibility for Medicaid is then delayed based on the amount you have given away.
"It seems to me that if people had to transfer $100,000 in order to benefit on Medicare Part D, it probably is not a really smart thing to do," said Clearwater lawyer Charles Robinson, who specializes in elder law. "If they had $30,000 and were maybe $10,000 over the threshold, that's something they might want to think about."
Giving money away has other hazards unrelated to government subsidies. If you are giving money away expecting the person to give it back or spend it on you when you need it, you could be disappointed. Money given to anyone else is legally theirs, and there is no guarantee they will spend it on your behalf. Once in someone else's name, it also becomes vulnerable to claims from that person's creditors.