Medicaid's Asset Transfer Rules
In order to be eligible for Medicaid, you cannot have recently transferred assets. Congress does not want you to move into a nursing home on Monday, give all your money to your children (or whomever) on Tuesday, and qualify for Medicaid on Wednesday. So it has imposed a penalty on people who transfer assets without receiving fair value in return.
This penalty is a period of time during which the person transferring the assets will be ineligible for Medicaid. The penalty period is determined by dividing the amount transferred by what Medicaid determines to be the average private pay cost of a nursing home in your state.
Example: If you live in a state where the average monthly cost of care has been determined to be $10,000, and you give away property worth $100,000, you will be ineligible for benefits for 10 months ($100,000 / $10,000 = 10).
Another way to look at the above example is that for every $10,000 transferred, an applicant would be ineligible for Medicaid nursing home benefits for one month. In theory, there is no limit on the number of months a person can be ineligible.
A person applying for Medicaid must disclose all financial transactions he or she was involved in during a set period of time -- frequently called the "look-back period." The state Medicaid agency then determines whether the Medicaid applicant transferred any assets for less than fair market value during this period. The look-back period for all transfers is 60 months (except in California, where it is 30 months). Also, keep in mind that because the Medicaid program is administered by the states, your state's transfer rules may diverge from the national norm. To take just one important example, New York State does not apply the transfer rules to recipients of home care (also called community care).
The penalty period created by a transfer within the look-back period does not begin until (1) the person making the transfer has moved to a nursing home, (2) he has spent down to the asset limit for Medicaid eligibility and is thus “otherwise eligible” for Medicaid, (3) has applied for Medicaid coverage, and (4) has been approved for coverage “but for” the transfer(s).
For instance, if an individual transfers $100,000 on April 1, 2017, moves to a nursing home on April 1, 2018, and spends down to Medicaid eligibility on April 1, 2019, that is when the 20-month penalty period will begin, and it will not end until December 1, 2020. In other words, the penalty period would not begin until the nursing home resident was out of funds, meaning there would be no money to pay the nursing home for however long the penalty period lasts.
Transferring assets to certain recipients will not trigger a period of Medicaid ineligibility. These exempt recipients include the following:
– A spouse
– A blind or disabled child
– A trust for the benefit of a blind or disabled child
– A trust for the sole benefit of a disabled individual under age 65.
In addition, special exceptions apply to the transfer of a home. The Medicaid applicant may freely transfer his or her home to the following individuals without incurring a transfer penalty:
– The applicant's spouse
– A child who is under age 21 or who is blind or disabled
– Into a trust for the sole benefit of a disabled individual under age 65 (even if the trust is for the benefit of the Medicaid applicant, under certain circumstances)
– A sibling who has lived in the home during the year preceding the applicant's institutionalization and who already holds an equity interest in the home
– A "caretaker child," who is defined as a child of the applicant who lived in the house for at least two years prior to the applicant's institutionalization and who during that period provided care that allowed the applicant to avoid a nursing home stay.
Congress has created a very important escape hatch from the transfer penalty: the penalty will be "cured" if the transferred asset is returned in its entirety, or it will be reduced if the transferred asset is partially returned. However, some states are not permitting partial returns.
Check with your elder law attorney to learn how these laws apply in your specific state.