Since the passage of the Deficit Reduction Act of 2005 signed on February 8, 2006 (“DRA”), many Texas elder law attorneys have used a transfer planning option (often referred to as “reverse half-a-loaf”) to save at least 50% of the countable resources of a Medicaid applicant. As Medicaid is “means-tested”, the amount of resources that an applicant can have is limited – particularly if the applicant is not married. So, instead of just spending the great majority of their funds simply on care costs, many applicants transfer resources to get below the resource limit and then apply even though this is subject to a transfer penalty if there is an application for long-term care Medicaid within five years of the date of the transfer. The Medicaid rules also indicate a transfer penalty will not begin until you apply and are “otherwise eligible”. As a result, a planning strategy commonly used in much of the country was to simply transfer resources to get below the limit, accept the penalty resulting in Medicaid ineligibility for the nursing home coverage (although there would be eligibility for drug costs) and then pay the nursing home or other expenses of the applicant with roughly one-half of the gifted funds (thus saving 50% or more of the gifted funds).
However, recently two Texas elder law attorneys have reported that this transfer planning option no longer works as they have appealed and lost after using this strategy. Since this strategy is commonly used by many Texas elder law attorneys (although our firm stopped using this planning option years ago due to concern that there would be this policy change), the two recent cases will have a chilling effect on the usage of this strategy in the future. This policy change will also affect clients who may have innocently thought it was fine to give to loved ones (i.e., the annual exclusion of up to $14,000 per year, per person) not realizing that such a gift could be penalized if they should apply for long-term care Medicaid within five years.
The good news is that there are other planning options for asset preservation.