Exceptions to Application of Transfer of Assets Penalties

3258. TRANSFERS OF ASSETS FOR LESS THAN FAIR MARKET VALUE 3258.10 Exceptions to Application of Transfer of Assets Penalties.-- There are a number of instances where, even if an asset is transferred for less than fair market value, the penalties discussed above do not apply. These exceptions are: A. The asset transferred is the individual''s home, and title to the home is transferred to: o The spouse of the individual; o A child of the individual who is under age 21; o A child who is blind or permanently and totally disabled as defined by a State program established under title XVI in States eligible to participate in such programs or blind or disabled as defined by the SSI program in all other States; o The sibling of the individual who has an equity interest in the home and who has been residing in the home for a period of at least one year immediately before the date the individual becomes institutionalized; or o A son or daughter of the individual (other than a child as described above) who was residing in the home for at least two years immediately before the date the individual becomes institutionalized, and who (as determined by the State) provided care to the individual which permitted the individual to reside at home, rather than in an institution or facility. B. The assets were: o Transferred to the individual''s spouse or to another for the sole benefit of the individual''s spouse; o Transferred from the individual''s spouse to another for the sole benefit of the individual''s spouse; o Transferred to the individual''s child, or to a trust (including a trust described in §3259.7) established solely for the benefit of the individual''s child (The child must be blind or permanently and totally disabled, as defined by a State program established under title XVI, in States eligible to participate in such programs or blind or disabled as defined under SSI in all other States); or o Transferred to a trust (including a trust as discussed in § 3259.7) established for the sole benefit of an individual under 65 years of age who is disabled as defined under SSI. 1. For the Sole Benefit of.--See §3257 for a definition of the term "for the sole benefit of." In determining whether an asset was transferred for the sole benefit of a spouse, child, or disabled individual, ensure that the transfer was accomplished via a written instrument of transfer (e.g., a trust document) which legally binds the parties to a specified course of action and which clearly sets out the conditions under which the transfer was made, as well as who can benefit from the transfer. A transfer without such a document cannot be said to have been made for the sole benefit of the spouse, child, or disabled individual, since there is no way to establish, without a document, that only the specified individuals will benefit from the transfer. 2. Blind or Disabled as Defined Under SSI Program.-- When it is alleged that an asset was transferred to or for the benefit of an individual who is blind or totally and permanently disabled, you must determine that the individual in fact meets the definitions of blindness or disability used by the SSI program (which are currently the same definitions as under the title II program) or under the State plan programs established under title XVI or under the title II program. If the individual is receiving SSI benefits or is eligible for Medicaid as a result of blindness or disability, you can accept the determination of blindness or disability as valid evidence. However, if the individual is not receiving SSI and/or Medicaid, you must make a separate determination of blindness or disability. When such a determination is necessary, follow the procedures usually used in your State when an individual applies for Medicaid on the basis of blindness or disability. However, if you use more restrictive criteria under §1902(f) of the Act, you may not use a more restrictive definition of blindness or disability. Instead, you must use the definitions used by the SSI program. C. In addition to the above, a penalty for transferring an asset for less than fair market value is not assessed if a satisfactory showing is made to the State that: o The individual intended to dispose of the assets either at fair market value or for other valuable consideration; o The assets were transferred exclusively for a purpose other than to qualify for Medicaid; o All of the assets transferred for less than fair market value have been returned to the individual; or o Imposition of a penalty would work an undue hardship. Pending publication of regulations on transfers of assets that will provide guidelines on what is meant by the term "satisfactory showing," you must determine what constitutes a satisfactory showing in your State. 1. Intent to Dispose of Assets for Fair Market Value or for Other Valuable Consideration.--See §3258.1 for a definition of the term "valuable consideration." In determining whether an individual intended to dispose of an asset for fair market value or for other valuable consideration you should require that the individual establish, to your satisfaction, the circumstances which caused him or her to transfer the asset for less than fair market value. Verbal statements alone generally are not sufficient. Instead, require the individual to provide written evidence of attempts to dispose of the asset for fair market value, as well as evidence to support the value (if any) at which the asset was disposed. 2. Transfers Exclusively for a Purpose Other Than to Qualify for Medicaid.--Require the individual to establish, to your satisfaction, that the asset was transferred for a purpose other than to qualify for Medicaid. Verbal assurances that the individual was not considering Medicaid when the asset was disposed of are not sufficient. Rather, convincing evidence must be presented as to the specific purpose for which the asset was transferred. In some instances, the individual may argue that the asset was not transferred to obtain Medicaid because the individual is already eligible for Medicaid. This may, in fact, be a valid argument. However, the validity of the argument must be determined on a case-by-case basis, based on the individual''s specific circumstances. For example, while the individual may now be eligible for Medicaid, the asset in question (e.g., a home) might be counted as a resource in the future, thus compromising the individual''s future eligibility. In such a situation, the argument that the individual was already eligible for Medicaid does not suffice. 3. All Assets Transferred for Less Than Fair Market Value Are Returned to the Individual.--When all assets transferred are returned to the individual, no penalty for transferring assets can be assessed. In this situation, you must ensure that any benefits due on behalf of the individual are, in fact, paid. When a penalty has been assessed and payment for services denied, a return of the assets requires a retroactive adjustment, including erasure of the penalty, back to the beginning of the penalty period. However, such an adjustment does not necessarily mean that benefits must be paid on behalf of the individual. Return of the assets in question to the individual leaves the individual with assets which must be counted in determining eligibility during the retroactive period. Counting those assets as available may result in the individual being ineligible for Medicaid for some or all of the retroactive period, (because of excess income/resources) as well as for a period of time after the assets are returned. It is important to note that, to void imposition of a penalty, all of the assets in question or their fair market equivalent must be returned. If, for example, the asset was sold by the individual who received it, the full market value of the asset must be returned to the transferor, either in cash or another form acceptable to the State. When only part of an asset or its equivalent value is returned, a penalty period can be modified but not eliminated. For example, if only half the value of the asset is returned, the penalty period can be reduced by one-half. 4. Imposition of Penalty Would Work Undue Hardship.-- When application of the transfer of assets provisions discussed in these sections would work an undue hardship, those provisions do not apply. Unlike the policies applying to transfers made on or before August 10, 1993, which only required that you acknowledge that the statute included an undue hardship provision, under OBRA 1993 you must implement an undue hardship procedure for transfers of assets. Further, that procedure must be described in your Medicaid State Plan. You have considerable flexibility in implementing an undue hardship provision. However, your undue hardship procedure must meet the requirements discussed in subsection 5. 5. Undue Hardship Defined.--Undue hardship exists when application of the transfer of assets provisions would deprive the individual of medical care such that his/her health or his/her life would be endangered. Undue hardship also exists when application of the transfer of assets provisions would deprive the individual of food, clothing, shelter, or other necessities of life. Undue hardship does not exist when application of the transfer of assets provisions merely causes the individual inconvenience or when such application might restrict his or her lifestyle but would not put him/her at risk of serious deprivation. You have considerable flexibility in deciding the circumstances under which you will not impose penalties under the transfer of assets provisions because of undue hardship. For example, you can specify the criteria to be used in determining whether the individual''s life or health would be endangered and whether application of a penalty would deprive the individual of food, clothing, or shelter. You can also specify the extent to which an individual must make an effort to recover assets transferred for less than fair market value. As a general rule, you have the flexibility to establish whatever criteria you believe are appropriate, as long as you adhere to the basic definition of undue hardship described above. However, your undue hardship procedure must, at a minimum, provide for and discuss the following administrative requirements: o Notice to recipients that an undue hardship exception exists; o A timely process for determining whether an undue hardship waiver will be granted; and o A process under which an adverse determination can be appealed.