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Asset Transfers That Are Exempt From Medicaid Penalties

Posted on: September 11th, 2018 by


Asset Transfers

Under the Medicaid “look back” rules, gifts made by a nursing home resident within the five-year period preceding the date of filing a Medicaid application are scrutinized by the Department of Social Services to determine the impact of those gifts on the applicant’s Medicaid eligibility. Contrary to common perception, however, not all asset transfers made during the look back period will cause the imposition of a period of Medicaid ineligibility. Rather, several types of asset transfers are “exempt” from the Medicaid “penalty” rules.

The most common exempt transfer is a gift of assets from one spouse to another. Such spouse-to-spouse gifts–regardless of the amounts transferred–are entirely exempt from the imposition of any period of Medicaid ineligibility. When advising a married couple where one spouse is in– or will be soon entering–a nursing home, the typical recommendation is for the “well” or “community” spouse to transfer virtually all the couple’s assets into his or her name, with the “ill” spouse retaining no more than the Medicaid resource allowance ($15,150 in 2018).

Upon filing the Medicaid application the community spouse would also submit a “spousal refusal” letter in which the community spouse states he or she will not make his or her income or assets available to pay the ill spouse’s nursing home costs. Once these steps are taken, the ill spouse would be immediately eligible for nursing home Medicaid coverage with no spend down requirement. Know that the county Department of Social Services retains the right to bring a support action against the refusing spouse, but that has not been common in the Hudson Valley.

Besides the exempt spousal transfers, there are several exempt transfers that apply to the family home. A home can be transferred without Medicaid penalty to any of the following:

  • A spouse
  • A child under the age of 21
  • A blind or disabled child of any age
  • A sibling who has an “equity interest” in the home (which can include payment for taxes and household expenses) and who has lived in the home for at least a year before the Medicaid application is filed
  • A “caretaker” child who has lived in the parent’s home for at least two years before the Medicaid application is filed

Besides transferring a home to a spouse, the most common exempt transfer of a residence is to the “caretaker” child. To qualify for the exemption, the child need not have any credentials as a health-care provider. Rather, the child who has lived with a parent for at least the two-year period must establish to the Department of Social Service’s satisfaction that the child has assisted the parent. Such assistance will usually include: cooking; dispensing medication; shopping for the parent; assistance with dressing, bathing, and similar daily tasks.

Another exempt transfer is the funding of a Medicaid applicant’s assets into a Supplemental Needs Trust for the sole benefit of disabled family member, provided that such disabled person is under the age of 65 when the transfer is made. This exemption is permitted under the law on public policy grounds. The federal government recognizes that absent the use of assets from a parent or grandparent to help support the disabled child or grandchild, the disabled person must likely rely on governmental programs to provide for their daily needs. Allowing an elderly parent’s or grandparent’s assets to fund a Supplemental Needs Trust for a younger disabled child or grandchild can help reduce that person’s reliance on public assistance. Note that upon the disabled beneficiary’s death, any assets remaining in this type of Supplemental Needs Trust must vest in the disabled beneficiary’s estate, and are therefore subject to recovery by the state to recoup the cost of public benefits paid to or for the disabled beneficiary during his or her lifetime.

Richard J. Shapiro, Esq., is a Certified Elder Law Attorney by the National Elder Law Foundation, as accredited by the American Bar Association, has been designated a “Super Lawyer” in Elder Law, and has the highest (AV) rating from Martindale-Hubbell. Mr. Shapiro is the author of “Secure Your Legacy: Estate Planning and Elder Law for Today’s American Family.” He is a partner with the Goshen law firm of Blustein, Shapiro, Rich & Barone, LLP. Mr. Shapiro is a member of WealthCounsel, ElderCounsel, the National Academy of Elder Law Attorneys, the New York State Bar Association (Trusts and Estates and Elder Law Sections), and the Hudson Valley Estate Planning Council. You can reach him at (845) 291-0011 or at rshapiro@mid-hudsonlaw.com. The information in this article is for general information purposes only and is not, nor is it intended to be, legal advice.

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