Gift Pitfall #1 - Paying for home care "informally."
"Informally" is a nice way of saying, illegally. But in my experience many people pay for their home care, in cash, to a person who is not trained. Many informal caregivers live in the house and receive room and board in addition to a weekly payment.
From a financial standpoint, if a person who needs round the clock care wants to stay in their home, "informal care" is potentially the most cost effect method of paying for the care.
An "informal" caregiver could be paid $700.00 a week. That same week, from a home health aid agency could cost $1,500.00 or more for the week and a nursing facility, in New Jersey, is over $2,500.00 a week.
I wrote earlier that "informal care" could be the most cost effective method of providing care, but there are some compelling reasons to avoid "informal care."
The most compelling reason to avoid "informal care" is because the payments are considered gifts for Medicaid purposes.
For Example: Mr. Green pays $700.00 a week for "informal home care" for the five years before entering a nursing home. He spent $182,000.00 for care over the 5 years. When Mr. Green applied for Medicaid, the County workers asked him for proof of how he spent the $182,000. He has no proof, because he paid cash. If Mr. Green can provide the County with a signed statement from the caregivers attesting to the payments they received, then he will not be penalized. The problem is that most people who get paid illegally do not want to admit it to a government entity.
So, in the end, Mr. Green will be penalized for $182,000/$239.41 or 760 days. He will not be penalized until his assets fall below $2,000.00 so he has no idea how he will pay the nursing home.