Q: My mother is 82 and was in good health until recently. After my father died three years ago, upon advice from her lawyer, Mom has been making gifts of $10,000 each year to her three children, our wives and a total of six grandchildren. In February, Mom fell and broke her hip. After surgery, she went from the hospital to rehabilitation to a nursing home, where she has been going downhill ever since.

Medicare paid for the first 20 days of her nursing home stay, and since then, I, as Mom's power of attorney, have been paying the difference between the nursing home charges and her supplemental insurance of $124 per day. Medicare just notified us that Mom would no longer benefit from therapy, meaning we would have to use her money to pay privately at a cost of $6,200 monthly.

Mom only has her home (worth about $150,000) and $28,000 left in the bank. Her only income is $1,000 per month from Social Security. I filed a Medicaid application only to be told that Mom was disqualified because of the gifts she had made. The only way we can cover the cost of her care is to sell her home -- which the lawyer told us Medicaid did not count. Why was it OK for Mom to make gifts like the lawyer told her and then be disqualified?

A: The short answer is that you and your mother received bad advice. Based on our calculations, your mother gave away $120,000 per year for three years -- a total of $360,000. While everyone is entitled to gift an amount equal to the annual exclusion each year -- this year and last year, the amount is $12,000 -- to as many persons as they choose without gift tax consequences, this does not mean that 1) making these gifts is a good idea, or 2) making these gifts won't affect other aspects of the donor's life.

Here, with income of only $1,000 per month, we believe advice to an 82-year-old woman to give away her assets was wrong. On top of that, the adviser obviously did not take into consideration the possibility that your mother would need the funds to produce additional income for her, to allow her a financial cushion or to pay for her care. And just as obviously, the adviser did not know or consider the fact that making these gifts would result in severe Medicaid disqualification penalties.

What to do to pay for her care? The best solution would be for all who received gifts to return them to your mother, but given the average debt structure of most families, we assume that the gifts have been spent, so this wouldn't be an option.

Since your mother does not live in her home, a reverse mortgage is out of the question. And there is not enough income to service a regular mortgage or equity line. The only other option would be to sell Mom's house and use that, together with the remaining $28,000 and her income, to pay for her care.

We suggest that you see an elder law attorney who can help you compute the penalty, since the gifts she has made may well come back to bite her should she outlive what is left of her money.