Seniors dealing with rapidly rising personal medical and nursing home expenses are often dismayed to discover that even modest asset levels may make them ineligible for Medicaid. Faced with the possibility of spending all their money on health care and leaving nothing for their heirs, they might be tempted to transfer everything they own to their heirs at once, qualify for Medicaid, and move into a nursing home.
Medicaid's “look-back” and “transfer penalty” rules are intended to keep Medicaid spending under control by preventing or minimizing asset transfers having the sole purpose of allowing one to qualify for the program. The Deficit Reduction Act of 2005 (“DRA”) tightened these rules to make it more difficult for people to plan their way around them.
Federal Medicaid regulations state that most asset transfers occurring within the five years prior to your application will subject you to a transfer penalty period, during which you will be ineligible for Medicaid. This five-year period is commonly called the “look-back” period. Prior to the DRA, the look-back period was only three years.
The definition of “asset transfer” is very broad. It includes outright gifts and charitable donations, sales of assets for less than fair market value (which constitute a transfer of the amount by which compensation received falls short of asset value), and forgiveness of debt.
An asset transfer occurring within the look-back period triggers a “transfer penalty,” a time period during which you are ineligible for Medicaid. The length of the transfer penalty period incurred is calculated by dividing the value of your asset transfer by the average monthly cost of nursing care in your state. The result is the number of months during which you are ineligible for Medicaid.
Prior to the DRA, the penalty period began on the date of the asset transfer. Penalties therefore often ran out before the individual applied for Medicaid. Under current rules, penalties incurred for asset transfers within the look-back period do not begin until either the day of the asset transfer or the date the individual moves into a nursing home and is found eligible for Medicaid – whichever is later.
For this reason, it is risky for any senior without long-term care insurance or very large assets to make gifts of any amount, even to charity, because it might jeopardize their ability to enter into nursing home care at any time during the following five years.
Certain asset transfers do not incur a penalty. You may transfer any asset to the following entities without penalty:
- your spouse;
- your blind or permanently disabled child; or
- a trust solely benefiting any permanently disabled person under age 65.
You may also transfer your home to the following individuals, in addition to those listed above:
- your child under the age of 21
- your child who resided in your home and provided care to you for at least two years immediately before you entered a nursing home; or
- a sibling having an equity interest in the home and who lived there for a minimum of a year before you entered a nursing home.
Do not be fooled into thinking that large gifts of cash might escape authorities' notice. Medicaid caseworkers will look carefully through your bank records for suspicious or unusual cash withdrawals. If any are found, it is up to you to provide documentation showing that you did not give the money away as a gift. Otherwise, penalties may be assessed.
Medicaid eligibility is subject to a complex set of rules including look-back, transfer penalties, and more. Any gift-giving or transfer of assets that seniors undertake without the advice of a competent elder law and estate planning attorney can delay their eligibility when most needed. Proper advice and planning is key to a healthy and financially sound future.
For more information please visit www.elderlawnewyork.com.
