Potential Pitfall of Lending Parents Money

Most people want to help their parents as they age.

However, and in addition to potential Medicaid penalties, there is a large risk many adult children do not consider when loaning their parents large sums for temporary financial support: the state may take the money instead of allowing them to be paid back.

If a parent eventually receives Medicaid the funds expended for their care will eventually be recovered by the state if possible. This means any unsecured asset left by the parent will be used to repay the Department of Health and Human Services before anyone else, including a family member.

Despite a familial understanding that the loan would eventually be repaid, for example through the sale of a family home once aging parents enter long-term care, without some type of agreement, a child is treated just like any other unsecured creditor when compared to the government.

While it may seem crass, the only way to avoid this situation in Maryland is through documentation of an agreement between parents and child.

The simplest way would be a document like a reverse mortgage tying the debt to the parents’ home. A child must be able to track the money moving from their account into their parents’ and to recover any loan the amount and terms must be documented.

In a perfect world, everyone would be able to pay for their parents’ care without any expectation or need to be repaid. But for people not in a situation where that is feasible, it is important to understand the implications of their actions.

For help creating a plan to support and protect yourself and your loved ones we all age, contact Abraham & Bauer today.

Planning ahead is a gift to your loved ones!