Jul 15, 2022 When Is A Gift Not A Gift For Medicaid Eligibility Purposes?

Medicaid is a valuable government resource for seniors and people with disabilities who need access to long-term residential nursing care. With the monthly room and board costs in a nursing home averaging  approximately $13,000 in New York, few families can afford to pay those expenses privately.

Medicaid coverage is only available to those with limited income and financial resources. And  transferring assets within the five years preceding your Medicaid application can result in Medicaid imposing an eligibility disqualification penalty period. The government discourages people from giving away their assets with the intent to reduce their resources so they can qualify for Medicaid benefits.

At Ely J. Rosenzveig & Associates, we want you to understand which assets may be transferred without jeopardizing your Medicaid eligibility. In this blog post, we explain how you can legitimately preserve your Medicaid eligibility even if you transfer or gift assets to someone in the five years before you file your Medicaid application, known as the 5-year look-back period.

Gifts and Transfers Exempt from Eligibility Penalties

While Medicaid disapproves of applicants transferring valuable assets in anticipation of applying for Medicaid benefits, some pre-application transfers or gifts are permissible. Medicaid identifies the asset transfers that will not trigger a penalty when reviewed by program eligibility assessors.

It’s important to recognize that a married couple’s assets are considered as available resources with which to pay their own nursing home costs if they exceed the maximum income or asset value that determines Medicaid eligibility.

Medicaid’s list of enumerated transfers that will not trigger a penalty includes the following:

1. An applicant may gift or transfer to the spouse living in the community (community spouse), or to another (e.g., trust) for the spouse’s benefit. In New York, if the community spouse’s total countable resources exceeds the community spouse resource allowance, a spousal refusal should be done.   
2. The community spouse may transfer to another (e.g., trust) for the community spouse’s benefit.
3. The applicant may transfer assets to their blind or disabled child, or to a trust specifically established for the sole benefit of the child.
4. The applicant may also transfer assets to a trust specifically established for the sole benefit of a disabled person under 65 years of age.
5. The applicant can transfer their home if it is their primary residence, but only to certain parties:

• to their community spouse (spousal exception)
• to their child if the child is blind or disabled or younger than 21
• to their brother or sister if that sibling owns an interest in the home and was living with the applicant for at least a year before the applicant entered a nursing home or other residential healthcare institution
• to their adult child if the child was living in the home with the applicant for at least two years prior to the applicant’s entering a nursing home, and during those two years, the child was acting as a caregiver for the Medicaid applicant, (known as the caretaker child exemption).

All the asset transfers just listed are exempt from Medicaid penalty. The underlying theory is that these transactions generally serve both the applicant’s and Medicaid’s interests. If these gifts were penalized, the applicant’s spouse or disabled child could become dependent on public benefits. Likewise, the caretaker child exemption recognizes the value of the caretaker child in delaying the entry of the applicant into a Medicaid-sponsored and paid for nursing home. The resident-sibling exemption acknowledges the reality of the sibling’s equitable interest in the home when they have resided there for a substantial period.

Other Penalty-Free Asset Transfers Not Enumerated by Medicaid

The asset transfers exempt from penalties that are enumerated by Medicaid are not the only such gifts or transfers permitted under New York’s Consolidated Social Services Law. The law also allows other asset transfers within the five-year look-back period if the Medicaid applicant can satisfactorily show that the transfer meets the following criteria:

• the Medicaid applicant or their community spouse intended to dispose of the asset either at fair market value, or for other valuable consideration; or
• the asset was not transferred primarily to qualify for Medicaid, but for another purpose, or
• the otherwise challengeable asset transfers for less than fair market value during the 5-year look-back period were returned to the Medicaid applicant.

How Do These Penalty-Exempt Gifts Differ from Medicaid’s Enumerated Transfers and Gifts?

Apart from the situations that Medicaid specifically identifies (detailed  at paragraphs 1 – 5,  above), for any other asset transfers to be deemed penalty-free, the Medicaid applicant will need to justify the transfer and explain why the asset transfer or gift qualifies for the penalty exemption.

The object is to persuade Medicaid that the assets were not transferred in order to reduce the value of your financial resources to more easily qualify for Medicaid. Important evidence to highlight would include

• good health when you transferred the asset (not expecting to need Medicaid soon),
• documentation that the transfer was part of a comprehensive estate plan transacted after consulting with an elder law attorney or tax accountant,
• a history of making gifts to other family members over the preceding years,
• evidence that a special circumstance or crisis occurred in the family to which you responded by transferring assets to help those in need.

How Do the Eligibility Penalties Work?

Medicaid imposes a period of ineligibility as a penalty if it determines that you transferred assets to someone during the look-back period who is not covered by one of the penalty exemptions. The length of the ineligibility penalty depends on the value of the asset that was transferred inappropriately for Medicaid purposes.

Medicaid uses the value of the transferred asset to establish how many months of nursing home expenses that asset would have paid for. For example, if the transferred asset is equal to the amount Medicaid pays for four months of nursing home care, then the eligibility penalty period would be four months.

Contact a Skilled and  Experienced Medicaid-Asset Protection Planning Attorney

at Ely J. Rosenzveig & Associates

Call: 1 (914) 816-2900
or email us at: [email protected]

[i] N.Y. Est. Powers & Trusts Law § 7-1.12(a)(4)