If you’ve done any research on nursing home Medicaid, it’s likely that you’ve come across terms like ‘look-back period’ or ‘gifting’ or maybe ‘Medicaid penalty.’ Unfortunately, there’s a good amount of speculation and misinformation about gifting assets and how it affects eligibility for Medicaid.
One of the key restrictions pertaining to Medicaid eligibility is that applicants have not gifted any funds or assets in the five-year period prior to their application. Some examples include helping a loved one by sending them money to pay for college or giving a car to someone for less than fair market value.
Whatever the intention was, by default Medicaid will consider the gift an attempt to give assets away so as to be under the asset limit while applying for Medicaid. This is problematic since Medicaid also penalizes applicants for any assets/funds transferred in the five years before applying for benefits.
Medicaid penalties, sometimes called ‘sanctions,’ are a period of time during which an applicant will not be able to receive Medicaid assistance due to gifting. If Medicaid determines that an applicant has transferred funds, no matter the amount, there will be a penalty period.
The length of the penalty period or sanction is determined using the state’s ‘penalty divisor,’ which theoretically is the average monthly cost of nursing home care in that state. For example, as of the date of this writing, the penalty divisor in Minnesota is $8,412.00. This means that for every $8,412 that was transferred, an applicant will not be able to receive benefits for one month. Let’s take a look at a scenario where gifting has occurred and determine how long the penalty period will be.
Mr. Jones of St. Paul, Minnesota is applying for Nursing Home Medicaid. About two years before applying, Mr. Jones gave his son $40,000 to help with college tuition. He disclosed this information to Medicaid and is now facing a penalty.
To determine the length of the penalty, we’ll divide the gifted amount ($40,000) by the penalty divisor ($8,412) to get 4.75, which is the number of months Mr. Jones is ineligible for Medicaid. Because of the penalty, Mr. Jones will have to private pay at the nursing home for 4.75 months, or four months and three weeks, before he’ll be eligible for Medicaid.
Gifting isn’t limited to funds transfers alone. Other types of gifting include selling assets for less than what Medicaid considers to be fair market value. The gift amount in this case would be the difference between what the asset was sold for and the fair market value of said asset.
Adding someone to the deed of your home is also considered a transfer as that effectively gives the other person a percentage of ownership in your home. The gift amount would be a percentage of the equity in the home.
While gifting is something to be avoided, there are ways to remedy the situation. The easiest way is to undo the gift by returning the asset or funds that were transferred. Whether it’s returning gifted money or removing someone from the deed to your home, undoing the gift will avoid a potential penalty.
Depending on the situation, there are additional options for addressing gifting. For more complicated cases, working with a Medicaid Planner can help to alleviate the issues caused by gifting. If you’re applying for benefits for yourself or a family member and there has been gifting in the last five years, reach out to Sensible Senior Planning for a unique, custom tailored solution.