Asset Transfer Rules and Medicaid
What Assets Can I Transfer?
In order to be eligible for Medicaid, you can’t have recently transferred assets. Congress doesn’t want you to move into a nursing home on Monday, give all your money to your children (or whomever) on Tuesday, and qualify for Medicaid on Wednesday. So, it has imposed a penalty on people who transfer assets without receiving fair value in return.
What’s the Penalty?
This penalty is a timeframe during which the person transferring the assets will be ineligible for Medicaid. The penalty period is determined by dividing the amount transferred by what Medicaid determines as the average private pay cost of a nursing home in your state.
Example: If you live in a state where the average monthly cost of care has been determined to be $5,000, and you give away property worth $100,000, you will be ineligible for benefits for 20 months ($100,000 / $5,000 = 20).
Another way to look at the above example is that for every $5,000 transferred, an applicant would be ineligible for Medicaid nursing home benefits for one month. In theory, there is no limit on the number of months a person can be ineligible.
Example: The period of ineligibility for the transfer of property worth $400,000 would be 80 months ($400,000 / $5,000 = 80).
The Medicaid “Look-Back” Period
A person applying for Medicaid must disclose all financial transactions they were involved in during a set period of time — frequently called the “lookback period.” The state Medicaid agency then determines whether the Medicaid applicant transferred any assets for less than fair market value during this time. The lookback period for all transfers is 60 months (except in California and New York Community Medicaid, where it is 30 months). Also, keep in mind that because the Medicaid program is administered by the states, it’s important to understand Arkansas transfer rules if you live in White County, Pulaski County, Saline County, and surrounding areas, including Sherwood, Little Rock, and Benton, AR.
The penalty period created by a transfer within the lookback period doesn’t begin until:
- The person making the transfer has moved to a nursing home
- They have spent down to the asset limit for Medicaid eligibility,
- They have applied for Medicaid coverage
- They have been approved for coverage, but for the transfer
For instance, if an individual transferred $100,000 on April 1, 2020, moved to a nursing home on April 1, 2021, and spends down to Medicaid eligibility on April 1, 2022, that is when the 20-month penalty period will begin, and it will not end until December 1, 2023.
In other words, the penalty period would not begin until the nursing home resident was out of funds, meaning there would be no money to pay the nursing home for however long the penalty period lasts. In states with so-called “filial responsibility laws,” nursing homes may seek reimbursement from the resident’s children. These rarely enforced laws, which are on the books in 29 states, hold adult children responsible for the financial support of indigent parents and, in some cases, medical and nursing home costs. In 2012, a Pennsylvania appeals court found a son liable for his mother’s $93,000 nursing home bill under the state’s filial responsibility law.
Exceptions and Limitations
Transferring assets to certain recipients won’t trigger a period of Medicaid ineligibility. These exempt recipients include the following:
- A spouse (or a transfer to anyone else as long as it is for the spouse’s benefit)
- A trust for the sole benefit of a blind or disabled child
- A trust for the sole benefit of a disabled individual under age 65 (even if the trust is for the benefit of the Medicaid applicant, under certain circumstances).
In addition, special exceptions apply to the transfer of a home. The Medicaid applicant’s home may be transferred to the individuals above, and the applicant also may freely transfer their 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 have to be in a trust)
- A sibling who has lived in the home during the year preceding the applicant’s institutionalization and already holds an equity interest in the home
- A “caretaker child,” defined as a child of the applicant who lived in the house for at least two years prior to the applicant’s institutionalization and who, during that period, provided care that allowed the applicant to avoid a nursing home stay.
Congress has created a very important escape hatch from the transfer penalty: the penalty will be “cured” if the transferred asset is returned in its entirety or reduced if the transferred asset is partially returned. However, some states are not permitting partial returns.
If you live in Searcy, Benton, Sherwood, Little Rock, AR, or surrounding areas, we can help you qualify for Medicaid without incurring a lookback penalty.
McClelland Law Firm, P.A. is here to help you and your loved ones understand probate and trust administration, estate planning, Medicaid planning, crisis planning, guardianship, and elder law. Our Benton, Sherwood, and Searcy law offices welcome you to contact us and learn how we can help meet your elder law legal matters in White County, Pulaski County, Saline County, and throughout Arkansas.
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