It’s all about timing. If you transfer your assets within five years of applying for Medicaid benefits, Medicaid could withhold your eligibility. Why? Medicaid does not look favorably on people who try to give away their assets before applying for Medicaid, because those assets could have been used to pay for their own care.
What is the problem?
In many cases, people anticipate that they will need long-term care in the future, but they don’t want to give up all of their assets in order to qualify for Medicaid benefits. So, they decide to give away many of their assets to family members in order to reduce the value of their estate. You may have heard of people doing this, but it doesn’t work.
Because Medicaid is what is called a “payer of last resort,” all other sources of payment must be exhausted before Medicaid will pay for long-term care expenses. So, if you give away assets, you will remain ineligible to receive Medicaid benefits for long-term care for a period of time after you first apply.
Medicaid Transfer Rules
In 2005, the Deficit Reduction Act was passed. This law imposes a period of ineligibility on anyone who gave away their assets within five years of applying for Medicaid. This period does not begin until the individual applies for Medicaid. For instance, if you gave away $10,000 to a family member 4 years and 6 months prior to applying for Medicaid, the period of ineligibility would start when you apply, not when the gift was made.
This period of ineligibility is known as the “penalty period.” The length of the period depends on the amount of assets transferred. Medicaid will divide the amount transferred by the average monthly cost of nursing home care in your area, in order to determine the length of the penalty period. So if you transferred a house to your child and the house was worth $100,000, and the average cost of nursing home care in your area is $10,000 a month, then your penalty period will be 10 months.
This penalty period is applicable only to individuals needing long-term care in an institutional setting, or receiving home health care. If you need acute care, including hospital or physician services, you will remain eligible to receive benefits for those services.
Are there any exceptions?
There are a few exceptions to this penalty period that apply to exempt assets. In other words, if you transfer assets that are exempt from being considered in determining eligibility for Medicaid, there will be no penalty for those transfers. For example, transfer of a car or household goods that are exempt, will not result in a penalty. Also excluded are gifts to spouses and disabled children. Another exception is a giving a house to a child who has resided in the home for at least two years prior to your application for Medicaid, as long as that child’s presence allowed you to remain at home.
Except in these special situations, you will be required to pay for your own long-term care if you made a gift within five years of your application for Medicaid. So, it is best to avoid making gifts if you believe there is a possibility you may need nursing home care in the near future. If you are not sure, talk to an elder law attorney in Fayetteville to determine your options.