You may have heard the old adage that it’s better to give than to receive. However, when you want to qualify for Medicaid, this may not necessarily be the case.
One in seven seniors will need long-term care services at some point in their later years. Someday, you might want to apply for Medicaid coverage of long-term care benefits. You need to be careful because giving away money or property can interfere with your eligibility.
What Is Medicaid?
Medicaid is a public benefits program that provides health care coverage for low-income individuals, including seniors and people with disabilities across the United States. The federal government funds Medicaid, and each state administers its own program.
To meet the financial eligibility criteria for the Medicaid program, an applicant's total assets and income must be below a certain threshold. Generally, most states set this threshold at $2,000 in what are known as “countable” assets. These income limits differ from state to state. In addition, other eligibility requirements can vary by state, as well.
Will I Have to Pay a Transfer Penalty?
Under federal Medicaid law, if you transfer certain assets within five years before applying for Medicaid benefits, you will not qualify for a set period (called a transfer penalty), depending on how much money you transferred. Even small transfers can affect eligibility. While federal law allows individuals to gift up to $18,000 a year (in 2024) without having to pay a gift tax, Medicaid law still treats that gift as a transfer.
Any transfer that you make, however innocent, will come under scrutiny. For example, Medicaid does not have an exception for gifts to charities. If you give money to a charity, it could affect your Medicaid eligibility down the road.
Similarly, gifts for holidays, weddings, birthdays, and graduations can all cause a transfer penalty. If you buy something for a friend or relative, this could also result in a transfer penalty.
Spending a great deal of cash all at once or over time could prompt the state to request documentation showing how the money was spent. If you don't have documentation showing that you received fair market value in return for a transferred asset, you could be subject to a transfer penalty.
What Transfers Are Exempt?
While most transfers result in a penalty, certain transfers are exempt. Even after entering a nursing home, you may transfer any asset to the following individuals without facing a penalty:
- your spouse
- a trust for the sole benefit of your child who is blind or permanently disabled
- a trust for the sole benefit of anyone under age 65 who is permanently disabled
In addition, special exceptions apply to the transfer of a home. As a Medicaid applicant, you may be able to transfer your home to the individuals above. You also can freely transfer your home to the following individuals without incurring a transfer penalty:
- A child who is under age 21
- A child who is blind or disabled (the house does not need to be in a trust)
- A sibling who has lived in the home during the year preceding the applicant's move to a long-term care facility. (The sibling also should already hold an equity interest in the home.)
- A “caretaker child,” who is a child of the applicant who lived in the house for at least two years before the applicant moved into long-term care. During that period, the child would also have provided care that allowed the applicant to avoid a nursing home stay.
Work With an Elder Law Attorney
Before giving away assets or property, check with an attorney to ensure that it won’t affect your Medicaid eligibility. Each state's Medicaid program follows different rules, so be sure to consult a qualified elder law attorney near you. They will be familiar with the regulations of the Medicaid agency in your location.
Learn more about Medicaid in the following essential articles: