Most
elder care is provided by families. Families use the same methods for
providing care for elders that they use to provide care for any other
family member in need. Whether it is a child with a disability, a
brother with an addiction, or an elder with declining cognitive skills,
families employ an informal system based upon gifts. Gifts, however, are
not as simple as they might seem.
Family
members whose earning ability is robust give to those who have less.
The recipients may be young adults who are just getting started in life,
middle age siblings who have failed to thrive economically, or elders
who need help managing their later years. These exchanges can continue
for a lifetime. I am sixty-one and, although I do not lack for much of
anything, my parents still send me money.
The
gift from children to elderly parents usually comes in the form of
care. Our children take over the driving, the money management, and
sometimes provide hands-on help with the activities of daily living.
Within the family system the gift of care repays the gifts the elders
have made to the children. This system of reciprocal gifts becomes an
integral part of the way family members interact with and support each
other.
Care
of family members by the informal exchange of gifts drives lawyers
crazy. Only recently have I finally surrendered and accepted the fact
that no matter what the law says this system of reciprocal giving will
always be the primary way in which families manage care for each other.
In
law school lawyers study gifts only briefly. We know that for a gift to
be complete there must be intent to give and delivery of the property
being given. The transaction is then complete. The recipient has full
ownership of the property given, and the giver has no more claim on it.
Gifts cannot have strings. If they do, they are not gifts. They may be
contracts, or trusts or God knows what, but they are not gifts.
Gifts
are not taxable to the recipient. If you receive money as a gift, it is
not income. Thus, you pay no income tax on it. If you are very wealthy
there may be a tax on the giver, but for anyone likely to die with less
than five million dollars that is not an issue.
(If you are rich enough to pay taxes on the gifts you give, you can
easily afford a good tax lawyer for individual advice. You should skip
this article and hire one.)
The
problem with the informal exchange of gifts for elder care is that the
government hates it. Most people understand that you cannot give away
all your money and then expect the government to pay for your long term
care. People intuitively understand and agree with that concept even if
they don't know the details of the rule.
(The
rule in a nutshell is that large gifts made within five years of a
Medicaid application will result in a penalty period in which the giver
is disqualified from receiving long term care coverage.)
The
Medicaid rule, designed to ward off the perceived threat of
millionaires on Medicaid, fails to acknowledge the real life role of
gifts in family dynamics. The hard work of elder care is a gift of
services from the child to the parent, services that the elder would
otherwise have to pay for. The gift of money to the child is reciprocal,
an act of gratitude for the care given. Neither gift has formal strings
attached, but one leads naturally to the other.
The
other legal presumption that comes into play in elder care is the rule
that care provided for a family member is a gift unless you can prove
otherwise. You overcome that presumption by having a care contract—a
written agreement in which the elder pays a family member for care. To
be valid, the contract has to be signed before the care is given. I am
forever encouraging elders and their family care givers to turn the
informal exchange of gifts into a contract. With a contract money flows
from the elder to the family care giver without the Medicaid penalty.
Most families, however want nothing to do with my care contracts. No
financial or legal advantage is significant enough to put a child
through the humiliation of asking a parent to pay for family-provided
care.
The
system of informal giving is so important that few families will sign
on to the lawyer-invented alternatives. This means at the time of a
Medicaid application some elders will be punished for giving money to
their children, and some children who might have received money for
providing care will see that money go to care centers or the government.
I
will continue to advise against joint bank accounts (a form of gift),
joint ownership of real property (another form of gift) and outright
gifts of money from elders to their children. I will offer care
contracts to be signed by the elders and their children in the hope that
the elder's money will flow in a structured way to family care
providers rather than nursing homes or the government. A few families
will take my advice, but most will not.
I
don't blame the families who decline to accept my advice. They choose
their family culture over legalism and who am I to blame them. The legal
rules and presumptions were developed to stop the small percentage of
people who used informal gifting to scam the system. The rules stop the
cheaters and mildly annoy the vast majority. Families, I have learned,
will put up with a significant amount of annoyance to keep the long
established system of gifts in place, and when all is said and done few
families are worse off because of it.
We
lawyers see the exchange of gifts as a problem, and we offer solutions.
Most families who come to me don't see the problem, and thus decline my
solutions. I cannot say they are wrong, but I always want their
decisions to be informed.
I
have more to say about gifts. In the system of reciprocal gifts I have
described there is usually one or more family member keeping accounts of
who did the giving and who did the receiving. Where accounts are kept
there must come a day of reckoning. That day comes when the elder dies.
In my next post, I talk about gifts and the administration of estates.
