Gifting and Penalties
If you know anything about Nursing Home Medicaid, you probably know that Medicaid policy is very strict about what’s allowed and what isn’t when it comes to financial eligibility. As a Medicaid Planner, I’m keenly aware of the many limitations on transactions that can be made as part of a Medicaid spend-down. A major restriction that many people unknowingly violate is gifting or transferring assets.
If assets are transferred to someone other than a spouse or a disabled child, Medicaid will penalize the applicant in the form of a sanction, a time period during which the applicant will not be allowed to receive Medicaid assistance. Medicaid is allowed to ‘look back’ five years from the date of application to see if any gifts have been made.
To determine the length of a penalty, states use a ‘penalty divisor.’ The penalty divisor is an amount that represents the average cost of nursing home care in each state. The amount gifted is divided by the state penalty divisor, and the resulting figure is the number of months that the person who gifted assets is ineligible for.
In Nevada for example, the penalty divisor as of the date of this writing is $8,839.41. So, if someone applying for Medicaid has gifted $20,000, their penalty would be 2.26 months, or two months and one week ($20,000 / $8,839.41 = 2.26).
Any transfer of assets to someone other than a spouse or disabled child is subject to this penalty. This includes loaning money, holiday gifts, or college funds, among others. Essentially anything purchased for someone else’s benefit can be penalized.
Selling assets for less than ‘fair market value’ as determined by Medicaid is also considered a prohibited transfer. For example, if you sell a car to your son for $500 when the market value is $2,500 Medicaid would penalize for a $2,000 transfer of assets. The same principal applies to other assets such as real estate and recreational vehicles.
Paying back money that was borrowed can also count as a gift unless there is a written agreement in place. Paying someone to provide care in the home without a contract, early inheritance payments and even charitable donations are all subject to penalty.
Gifting assets is a major pitfall when applying for Medicaid assistance. However, there are often times remedies to the problem, whether it’s having the ‘gift’ returned or using the penalty period as part of the overall strategy. If you find yourself or a loved one in a gifting situation, consult with a Medicaid Planner on what your options are for the best possible outcome.