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Medicaid Transfer Rules

By Edward H. Adamsky, Esq.

People always ask me about the Medicaid transfer rules.  The first and most common error is confusion of the $12,000 (formerly $10,000) yearly exemption amount for Gift Tax purposes with some sort of exemption for gifting under Medicaid.  There is no yearly exemption for Medicaid.  All gifts (of whatever sort or size) are Transfers according to the Medicaid rules and are penalized.  Here is a quick summary of the rules:

There is a period of ineligibility for Medicaid for those who transfer (give away) assets.  This period is determined by dividing the amount transferred by the Medicaid-determined average private pay cost of a nursing home in your state.  The Deficit Reduction Act of 2005 (the DRA) significantly changed the rules.  For transfers made prior to enactment of the DRA, on February 8, 2006, Medicaid officials only looked at transfers made within the 36 months (3 years) prior to the Medicaid application.  But for transfers made after the DRA the so-called “look-back” period is 60 months (5 years).

Another significant change of the DRA has to do with when the penalty period created by the transfer begins.  Under the old law, the penalty period began when the gift was made.  Under the DRA, the period will not begin until (1) the transferor has moved to a nursing home, (2) he has spent down to the asset limit for Medicaid eligibility, (3) has applied for Medicaid coverage, and (4) has been approved for coverage but for the transfer.

For instance, if an individual transferred $100,000 on April 1, 2006, moved to a nursing home on April 1, 2007, and spends down to Medicaid eligibility on April 1, 2008, that is when the penalty period will begin (about 13 months in Mass. - and it will not end until June 1, 2009).  How this individual will pay for the nursing home for the next 13 months is not known, and how the various states will handle this situation is not yet clear.  A crisis may occur over the next few years when nursing homes are filled with people who cannot pay their bills and who cannot qualify for Medicaid.  How that crisis will play out is anyone’s guess. 

The conclusion is that 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 look-back period elapses without first consulting with an Elder Law Attorney.  This is because the penalty could ultimately extend even longer than five years, depending on the size of the transfer.

Edward Adamsky Esq.

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