We’ve all heard that it’s better to give than to receive, but if you think you might someday want to apply for Medicaid long-term care benefits, you need to be careful because giving away money or property can interfere with your eligibility.
Under federal Medicaid law, if you transfer certain assets within five years before applying for Medicaid, you will be ineligible for a period of time (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 $15,000 a year (in 2019) 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 lot 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.
While most transfers are penalized, 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:
- your spouse
- 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, you may transfer your home to the following individuals (as well as to those listed above):
- your child who is under age 21
- your child who has lived in your home for at least two years immediately prior to your moving to a nursing home and who provided you with care for those two years, which allowed you to remain at home during that time (also, each state applies its own strict criteria to determine whether a child qualifies as a "caretaker" child, which may include: verfifying that the parent required care; that the child lived in the home for the two (2) years immediately proceeding the parent's entry into a qualified, long-term care facility; and that the child actually provided the necessary care)
- a sibling who already has an equity interest in the house and who lived there for at least a year before you moved to a nursing home
The bottom line is that the transfer penalty rules for giving away property or money, during the five (5) year Medicaid eligibility look-back period, are harsh and unforgiving. Thus, PRIOR to giving away assets or property, consult with your elder law attorney to ensure that it will not affect your Medicaid eligibility.