How Can I Safely Transfer My Assets to Get Medicaid to Pay for Long-Term Care?

While Medicaid finances most long-term care in this country, Medicaid is supposed to be "the payer of last resort" when it comes to nursing homes, assisted living, and home health care. Medicaid pays for long-term care only for those who have very low income, or who have little income after paying for medical expenses, home care, or nursing homes.

Since Medicaid has asset limits, some people try to give away their assets to relatives to qualify for Medicaid. But when you give away property within five years of applying for Medicaid long-term care, Medicaid presumes that the gift was made to qualify for Medicaid. This can trigger a period of ineligibility for Medicaid long-term care benefits, since those assets could have been used to pay for your care.

But not all transfers trigger a penalty period for Medicaid. Federal and state Medicaid laws contain various exceptions to the rule against making gifts within five years (the "look-back period") of applying for Medicaid for long-term care. Here are the most common exceptions.

Assets That Can Be Transferred Without Penalty

When determining eligibility, Medicare ignores some resources (assets), because it doesn't consider them to be available to pay for the applicant's long-term care. Some examples include household goods and personal effects, one automobile, certain pre-paid funeral plans, and certain property "used for self-support," such as tools used in a business or income-producing property. If all of the conditions contained in state and federal laws are met, Medicaid won't require you to "liquidate" (sell) these assets to pay for your long-term care. And because these assets are exempt, you're generally allowed to gift them to others for little or no compensation.

While your home (primary residence) isn't usually considered available to pay for your long-term care, Medicaid laws don't allow you to gift your house to others without penalty, except in the specific circumstances discussed below.

Home Ownership and Medicaid: Asset Transfer Rules

You can qualify for Medicaid long-term care if you own your own home, up to a certain value. Here are Medicaid's rules.

Homes are noncountable assets. Your home is subject to special rules established under both state and federal Medicaid laws. As a general rule, a home is exempt (that is, it doesn't count toward Medicaid's asset limit, and Medicaid doesn't require it to be sold to pay for long-term care) if the applicant intends to return to the house after long-term care or if it's occupied by the applicant, the applicant's spouse, or a dependent relative.

If the house is worth quite a bit and the owner has gained equity in it, Medicaid will only ignore a certain amount: $713,000 in most states, and $1,071,000 in high-cost states like California, New York, and Connecticut.

Transfer rules for your home. In most cases, you can't give your house to your children or other relatives without penalty (since Medicaid's home exemption generally requires you or your spouse to live in and own the house). But there are exceptions to this rule. Under federal law, the transfer of a home won't trigger a period of ineligibility for Medicaid long-term care if 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 owns part of the home and has been living in the home for at least a year before the date the applicant needs long-term care, or
• a son or daughter of the applicant who has been living in the home for at least two years before the date the applicant moved to a nursing home, and who provided the applicant with care that allowed the applicant to reside at home rather than in a 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.

Medicaid liens on the home. In some cases, even though the house wasn't a 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. Transferring the house to the spouse's name can eliminate the possibility of estate recovery; see our article on retitling assets for Medicaid purposes.

Transfers to a Disabled 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 is 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 disabled as defined by the individual state program or as defined by Supplemental Security Income rules.

Transfers for the Benefit of the Spouse

Transfers to a spouse aren't penalized by Medicaid because assets held in the name of either spouse are included when determining an applicant's eligibility. In other words, Medicaid doesn't care which spouse owns the asset. So there's no transfer penalty if:

• an asset is transferred to the applicant's spouse
• an asset is transferred to another for the sole benefit of the applicant's spouse, or
• an asset is transferred from the applicant's spouse to another for the sole benefit of the applicant's spouse.

This means that the spouse who is moving to a nursing home is allowed to transfer unlimited assets to his or her spouse, or to someone else for the benefit of the spouse (such as to an annuity company or a trust).

An annuity is a contract you or your spouse can purchase for a lump sum in exchange for payments to be made back to your spouse over the course of their lifetime. Buying an annuity doesn't violate Medicaid transfer rules if the annuity is planned so that it runs out by the end of your spouse's life expectancy. ("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.)

Medicaid also requires that an annuity name the state as a beneficiary of the annuity, so that, if there's any money left after the spouse (or minor or disabled children) pass away, it can reimburse the state for Medicaid expenses. Annuities must meet certain other rules to avoid being treated as transfers of assets. Be sure to seek competent advice from an elder law attorney familiar with these rules before purchasing one.

Undue Hardship Exception to Transfer Penalties

If Medicaid says you made a transfer that results in a period of ineligibility, you might be able to convince Medicaid that your ineligibility for Medicaid long-term care coverage will result in an undue hardship. Getting a hardship waiver for the penalty period isn't an easy task, however, because federal law defines undue hardship as depriving a person of medical care that endangers life. In other words, you would have to prove that you can't afford a nursing home without Medicaid, and that, without a nursing home, you might not survive. Each state has its own rules surrounding undue hardship.

If you think you may qualify for a hardship exception, your nursing home can file a waiver request for undue hardship with your consent. In some states, Medicaid might pay for nursing home care for up to 30 days while your request for a hardship waiver is decided.

Asset Transfers That No Longer Work

Due to changes in the Medicaid laws, some asset transfers that used to avoid penalties (called Medicaid "loopholes") no longer work. And transfers to purchase "life estates" in property, promissory notes, or loans now have restrictions that make them difficult to use. For more information, see our article on asset transfers that no longer avoid Medicaid penalties.