Transferring assets to qualify for Medicaid can disqualify you from benefits for a certain period. Before making any transfers, you need to be aware of the consequences.
Congress has established a period of ineligibility for Medicaid for those who transfer assets. The lookback period for all transfers is 60 months, which means state Medicaid officials look at transfers made up to five years before your Medicaid application.
How the Lookback Penalty Works
While the lookback period determines what transfers will be penalized, the length of the penalty depends on the amount transferred. The penalty period is determined by dividing the amount transferred by the average monthly cost of nursing home care in the state. For instance, if you transferred $100,000 in a state where the average monthly cost of care was $5,000, the penalty period would be 20 months ($100,000/$5,000 = 20). The 20-month period would not begin until:
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You have moved to a nursing home
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You have spent down to the asset limit to qualify for Medicaid
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You have applied for Medicaid coverage
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You have been approved for coverage, but for the transfer
Therefore, if an individual transfers $100,000 on April 1, 2022, moves to a nursing home on April 1, 2023, and spends down to become eligible for Medicaid on April 1, 2024, that is when the 20-month penalty period will begin, and continue until December 1, 2025.
Professional Guidance From an Elder Law Attorney
Transfers should be made carefully, with an understanding of all the consequences. People who make transfers must be careful not to apply for Medicaid before the five-year lookback period without first consulting an elder law attorney. This is because the penalty could ultimately extend even longer than five years, depending on the size of the transfer.
Be extremely careful before making transfers. Any transfer strategy must take all income and expenses into account, including the cost of the nursing home. Bear in mind that if you give money to your children, it belongs to them, and you should not rely on them to hold the money for your benefit.
However well-intentioned they may be, your children could lose the funds because of bankruptcy, divorce, or lawsuit. Any of these occurrences would jeopardize the savings you spent a lifetime accumulating. Do not give away your savings unless you are ready for these risks.
In addition, be aware that the fact that your children are holding your funds in their names could jeopardize your grandchildren's eligibility for financial aid in college.
Transfers can also have bad tax consequences for your children. This is especially true of assets that have appreciated in value, such as real estate and stocks. If you give these to your children, they will not get the tax advantages they would get if they were to receive them through your estate. The result is that when they sell the property, they will have to pay a much higher tax on capital gains than they would have if they had inherited it.
As a rule, never transfer assets for Medicaid planning unless you keep enough funds in your name to:
- Pay for any care needs you may have during the resulting period of ineligibility for Medicaid
- Feel comfortable and have sufficient resources to maintain your present lifestyle
Remember: You do not have to save your estate for your children. The bumper sticker that reads "I'm spending my children's inheritance" is a perfectly appropriate approach to estate and Medicaid planning.
Even though a nursing home resident may receive Medicaid while owning a home, if the resident is married, they should transfer the home to the community spouse (assuming the spouse in the nursing home is both willing and competent). This gives the community spouse control over the asset and allows them to sell it after the nursing home spouse becomes eligible for Medicaid.
In addition, the community spouse should change their will to bypass the nursing home spouse. Otherwise, at the community spouse's death, the home, and other assets of the community spouse will go to the nursing home spouse and need to be spent down.
Transfers Allowed Without Penalty
While most transfers are penalized with a period of Medicaid ineligibility of up to five years, certain transfers are exempt from this penalty. Even after entering a nursing home, you may transfer any asset to the following individuals without having to wait out a period of Medicaid ineligibility:
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Your spouse (but this may not help you become eligible since the same limit on both spouse's assets will apply)
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A trust for the sole benefit of your child who is blind or permanently disabled
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A trust for the sole benefit of anyone under age 65 and permanently disabled
In addition, you may transfer your home to the following individuals:
- A child who is under age 21
- A child who is blind or disabled (the house need not be in a trust)
- A sibling who has lived in the home during the year preceding your institutionalization and who already holds an equity interest in the home
- A caretaker child who lived in the house for at least two years prior to your institutionalization and who, during that period, provided care that allowed the applicant to avoid a nursing home stay.
Find an elder law attorney near you for guidance on qualifying and applying for Medicaid.