While Medicaid finances most long-term care in this country, Medicaid is supposed to be "the payer of last resort" when it comes to long-term care. Medicaid pays for long-term care only for those who are poor or who have become poor after paying for medical expenses or nursing homes.
Many people try to give away their assets to relatives in order to qualify for Medicaid. But when an applicant gives away property within five years of applying for Medicaid coverage of long-term care, Medicaid presumes that the gifts was made to qualify for Medicaid. This will trigger a period of ineligibility for Medicaid long-term care benefits on the theory that those assets could have been used to pay for the individual’s care.
Not all transfers, however, trigger a period of ineligibility for Medicaid. Federal and state Medicaid laws contain various exceptions to the rule against making gifts within five years of applying for Medicaid for long-term care (called the look back period). Following is a brief review of the most common exceptions.
Assets That Can Be Transferred Without Penalty
When determining eligibility, not all resources are considered available to be used for the applicant’s care. Some examples include household goods and personal effects, one automobile (depending upon state laws and the marital status of the applicant), certain pre-paid funeral plans, and property used for self-support, such as income-producing property or property used in a business. If all of the conditions contained in state and federal laws are met, these assets do not have to be liquidated to pay for the Medicaid applicant’s long term care. For that reason, federal and state laws generally allow for the gifting of those assets to others for little or no compensation.
While the applicant’s primary residence isn't usually considered available to pay for the applicant's care (subject to specific conditions, discussed below), Medicaid laws do not allow for the applicant's house to be gifted to others without penalty.
The Home: Medicaid Rules
Noncountable asset. The home of the applicant is subject to very special rules established in both state and federal Medicaid law. As a general rule, a home is exempt (that is, it doesn't count toward Medicaid's asset limit and Medicaid does not require it to be sold to pay for long-term care) if all of the following conditions are met:
- It is occupied by the applicant and/or the applicant’s spouse.
- The total equity value is less than $543,000 ($814,000 in some states, including California, New York, and Connecticut), and
- Title must usually be held in the name of the applicant and/or the applicant’s spouse.
Transfer rules. However, in most cases, the house cannot be gifted to someone without penalty (since the home exemption requires the applicant or the applicant's spouse to live in and own the house). But there are exceptions to this rule. Under federal law, when title to the applicant’s home is transferred to another, this will trigger a period of ineligibility for Medicaid coverage of long-term care unless the transfer is made to one of the following individuals:
- the spouse of the applicant
- a child of the applicant who is under age 21
- a child of the applicant who is blind or permanently and totally disabled
- the sibling of the applicant who has an equity interest in the home and who has been residing in the home for a period of at least one year immediately before the date the applicant becomes institutionalized, or
- a son or daughter of the applicant (other than a child as described above) who has been residing in the home for at least two years immediately before the date the applicant becomes institutionalized, and who (as determined by the state) provided the applicant with care, which permitted the applicant to reside at home rather than in an institution or facility.
In other words, the Medicaid applicant can gift his or her house to anyone in the above circumstances during the five-year look-back period without penalty.
Liens on the home. In some cases, even though the house was a non-countable asset for Medicaid eligibility purposes, Medicaid can put a lien on the house and try to recover costs from the sale of the house after the nursing home resident dies. For more information, see our article on Medicaid estate recovery.
Transfers for the Benefit of the Spouse
Transfers to a spouse are not penalized by Medicaid because assets held in the name of either spouse are included when determining an applicant's eligibility. In other words, Medicaid does not care which spouse owns the asset. Federal law provides that there is no transfer penalty if:
The asset was transferred to the applicant's spouse, or to another for the sole benefit of the applicant's spouse, or
- The asset was transferred from the applicant's spouse to another for the sole benefit of the applicant's spouse.
This means that an institutionalized spouse (the spouse who is living in a nursing home) is allowed to transfer unlimited assets to his or her spouse, or to someone else for the sole benefit of his or her spouse (such as to a trust or annuity company). "Sole benefit of the spouse" means that no one besides the spouse can benefit from the assets in any way, now or at any time in the future.
Also, federal law states that any assets transferred to another "for the sole benefit of the spouse" must be spent for the benefit of the spouse within a time-frame corresponding to the spouse's life expectancy. In other words, the trust or annuity must be to set up to spend the assets or money for the spouse's needs in a way that it will run out by the time the spouse dies.
This is particularly applicable when an annuity is purchased by the applicant’s spouse to pay out in a series of monthly payments to that spouse. These “Medicaid Annuities” have a number of specific rules that must be complied with, so be sure to seek competent advice from an elder law attorney familiar with these rules before purchasing one.
Transfers to a Child
A Medicaid applicant can transfer any resources (including a house, as discussed above) to a disabled child without running afoul of the transfer rules. No transfer penalties will be imposed when an asset was transferred to the applicant's child, or to a trust established solely for the benefit of the applicant's child, as long as the child is either blind or permanently and totally disabled as defined by the individual state program or as defined by Supplemental Security Income rules.
Undue Hardship Exception
In the event a Medicaid applicant made a transfer resulting in a period of ineligibility, there may be a chance you can convince Medicaid that the ineligibility for Medicaid long-term care coverage will result in an undue hardship. This will not be an easy task, however, because undue hardship is defined in federal law as depriving the person of medical care that endangers life. In other words, the applicant would have to prove that he or she couldn't afford a nursing home without Medicaid, and that, without a nursing home, the applicant might die. In addition, each state has its own rules surrounding undue hardship. If you think you or a family member may qualify for this exception, the applicant's nursing home can file a waiver request for undue hardship with the applicant's consent.
Asset Transfers That No Longer Work
Due to changes in the Medicaid laws, some asset transfers that used to avoid penalties no longer do. For more information, see our article on asset transfers that no longer avoid Medicaid penalties.