Insurance

Rules for Transfering Assets and Medicaid Look-Back Periods

Anyone thinking about transferring money or assets to qualify for Medicaid should know that transfers can affect Medicaid eligibility.

In addition to providing low-income families and seniors over the age of 65 with health care coverage, Medicaid also pays for long-term nursing home care for elders. If your parents are reaching the age where you think a nursing home might become a possibility, it's important to begin planning years in advance. Both federal and individual state laws govern Medicaid, and both include a period of ineligibility for long-term care coverage if your parent transfers assets before applying.

Transfers Restricted During the Look-Back Period

Medicaid eligibility depends on the value of the assets your parents own. If the value of their assets exceeds certain limits, they won't qualify (more on this below). The easy answer is for your parent to give away some assets, so that the inheritance you are anticipating isn't used up on the cost of nursing homes, but the law restricts this. Any transfer of property made within five years of applying for Medicaid for long-term care will be looked at to see if the transfer makes the applicant ineligible for Medicaid. This is commonly referred to as the "look-back" period.

Transfers Can Result in a Penalty Period of Ineligibility

Transferring or giving away assets during the look-back period doesn't bar your parents from Medicaid eligibility forever, but it will result in a penalty period. Calculating the length of this period depends on the cost of nursing homes in your area. You begin with the overall value of the assets your parent transferred or undersold and then divide that number by the average monthly cost of a nursing home in your state.

For example, if your father gave away $30,000 in assets, and if the average cost of a nursing home in your state is $5,000 per month, your father would be ineligible for Medicaid for six months ($30,000 divided by $5,000). The penalty period would begin on the day your father applies for Medicaid, assuming he meets all other qualifications.

Only Transfers for Less Than Fair Market Value Are Problematic

The law doesn't prohibit all transfers. It addresses only those made for less than "fair consideration," or "fair market value." For example, if your parents own artwork appraised at $30,000, they can't give it away or sell it for anything less than that during the look-back period. If they sell the artwork for $2,000 to a relative, the $28,000 difference would count against them for Medicaid eligibility. On the other hand, if your parents sell their house to you for fair market value the year before they apply for Medicaid, there wouldn't be a transfer penalty (although then they would probably have cash in the bank from the house sale, which could make them ineligible until it is spent).

Also, one parent can transfer any assets to the other parent without jeopardizing his or her eligibility for Medicaid. And a Medicaid applicant can transfer a house to the following individuals without penalty:

  • a child who is under 21, blind, or permanently and totally disabled (this applies to other assets as well)
  • a sibling who has an ownership interest in the home and who has been living in the home for at least one year before the applicant goes to a nursing home, or
  • an adult child with no disabilities who has been living in the home for at least two years before the applicant goes to a nursing home, and who cared for the applicant, allowing the applicant to live at home rather than in a nursing home.

Some Assets Don't Count Toward the Medicaid Limit

Not everything your parent own counts as an asset for Medicaid purposes. For instance, their home is generally exempt, unless they have a significant amount of equity in it. Even then, the equity won't count if your other parent (or stepparent) is living in the house, or a dependent child or other relative. At least one automobile is also exempt, as well as household goods, personal effects, life insurance policies, and assets that produce income. Other assets, including cash in the bank, can't add up to more than $2,000 for one parent or $3,000 for both parents (when both parents are applying for Medicaid-paid long-term care). The rules are different when only one parent is applying for Medicaid.

A Parent Who Stays at Home Can Keep Some Assets

If one of your parents will go to a nursing home and the other will not, the "community spouse" (the one not going to a nursing home) is allowed to keep one-half of your parents' assets, up to a maximum set by state law. This maximum amount is called the "community spouse resource allowance" and varies by state, but your state must allow the community spouse to keep at least $24,000 in assets, and no more than $121,000. Check with your state’s Medicaid agency to find out the exact amount.

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