How can you Make Transfers and Still Qualify under current Medicaid Rules?
Most families are aware that making gifts and other uncompensated transfers for less than fair market value can affect Medicaid eligibility, and can even cause a penalty period of ineligibility. And this is certainly TRUE! And in many cases, the effects can be devastating; however, in other ways, with proper Medicaid planning, Medicaid does allow many transfers that can have a tremendously positive affect on the families financial situation, and will not affect Medicaid eligibility in any way. It is vitally important to know what you can and cannot de.
First, the basics. Yes, gifts do affect Medicaid eligibility, and can cause a Medicaid penalty period before the Medicaid applicant will receive Medicaid benefits. The basic rule: any uncompensated transfer of assets made within five years of a Medicaid application for long-term care will cause a transfer penalty before Medicaid coverage will begin. This five year period is called the Medicaid “‘look-back period.” If such a transfer has been made, the state Medicaid office will take the equity interest (the fair market value) of the transfer and divide that gift by the applicable “Penalty Divisor” to determine the period of Medicaid ineligibility. For example, in Missouri, the current Penalty Divisor is roughly $7,500. That calculation will determine the number of months that the Medicaid applicant will be penalized before the Medicaid recipient will begin to receive financial assistance for their nursing home care. For example, if potential Medicaid recipient made a transfer of a $75,000 CD to another family member three years prior to the Medicaid application, that applicant will be penalized for 10 months before the Medicaid program will begin paying for long-term care services ($75,000 divided by 7,500 equals 10 months of ineligibility).
The penalty period applies to the transfer of assets to any family member (other than a community spouse, see Exceptions below), and covers the transfer of any asset: real estate, life insurance, other insurance policies, bank accounts, automobiles, annuities, etc. All will result in ineligibility for a period of time. And a penalty period will be applied even if the transfer of assets involves an exempt asset (such as an automobile or a primary residence). Both countable assets and exempt assets can affect Medicaid eligibility.
Applications can be made for waivers under undue hardship if a gift was made with no intention of accelerating Medicaid eligibility; these appeals, however, are difficult and are no guarantee that the Medicaid agency will allow Medicaid eligibility due to undue hardship.
Exceptions.
Of course, one exception to the Medicaid transfer rules to make any and all desired transfers to trusts, or to family members or loved ones five years prior to any possible Medicaid application, for asset protection purposes. And many families do engage in this form of estate planning, if they can begin the process well before any need for health care, medical care, long-term care, or care in a nursing facility, reducing assets below the asset limit early and expediting qualifying for Medicaid. It can be difficult, however, to anticipate such needs more than five years in advance.
Another exception: Any and all transfers by and between the care recipient and the individual’s spouse are always fully exempt. However, Medicaid rules count all assets of either spouse as countable assets, so transfers of this type rarely accelerate Medicaid eligibility for the applicant spouse.
Another exception: A transferor/applicant can make a transfer for the sole benefit of a disabled child (adult child, minor child, child of any age) and incur no period of ineligibility. The “Disabled Child Exception” allows parents to transfer assets to or for the benefit of any disabled child and immediately qualify for Medicaid. If the child is receiving SSI, Medicare, or Social Security Disability, the transfer can even be structured in a Special Needs Trust for the sole benefit of the child so that the child receives no disqualification from the benefits that they may be receiving.
Another exception: Under the Child Caretaker Exception, an adult caregiver child who provides care for a parent for a period of two years in the parent’s home, can receive the home or the equity interest in the home with no penalty period applied.
Other exceptions under other federal laws apply, but the exceptions listed here are the most common. QMC can guide you through the Medicaid rules to find your best case scenario.
