As we grow older, our desire to support our children often intensifies. A trend that is becoming more prevalent is parents choosing to give their adult children an “advance” on their inheritance while they are still alive. Essentially, this means gifting a sum of money to the child during the parent’s lifetime and including in their estate planning documents that if the gift is not repaid, it will be considered an advance, affecting the child’s share of the estate. While there are several concerns I have with this approach, two major ones stand out: the potential impact on Medicaid eligibility due to the gift being considered, and the risk of unequal distribution of assets among the children.

 

One significant issue arises if the parent requires long-term care. Medicaid, the government program that assists with long-term care costs, imposes a five-year look-back period to assess any gifts made during that time. If a gift is identified, a penalty is calculated, which could prevent the person from qualifying for Medicaid until the penalty period is served. Providing an advance during your lifetime is indeed considered a gift and may significantly affect your eligibility for long-term care assistance.

 

Additionally, we cannot predict the financial demands that may arise toward the end of our lives, especially when it comes to potential long-term care needs. Giving away money during your lifetime with the expectation that everything will be equalized may be risky, as there’s no guarantee of how much money will be left in your estate. For instance, if an advance of $300,000 is given to one child, deemed an advance, and after paying debts, funeral expenses, and legal bills, there is insufficient remaining to reimburse the other children, an unfair situation arises.

 

As a general rule, we advise against providing advances during your lifetime. While there may be specific exceptions based on individual circumstances, seeking counsel before making such decisions is crucial. Without professional guidance, we do not recommend this course of action.

 

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