Kutchins, Robbins & Diamond, Ltd. Certified Public Accountants and Advisors

Gifting (Transferring Assets) and Medicaid Penalties

If you’re considering transferring assets (including cash, giving gifts for holidays, weddings, birthdays or graduations); or if you plan to buy something for a friend or relative, or you want to gift to charities, it could affect your Medicaid long-term care benefits; you need to be careful because giving away money or property can interfere with your eligibility.

Under federal Medicaid law, if you transfer certain assets within five years before applying for Medicaid, you will be ineligible for a period of time (called a transfer penalty), depending on how much money you transferred. Even small transfers can affect eligibility. While federal law allows individuals to gift up to $14,000 a year (in 2017) without having to pay a gift tax, Medicaid law still treats that gift as a transfer.

A person applying for Medicaid must disclose all financial transactions he or she was involved in during a set period of time — frequently called the “look-back period.” The state Medicaid agency then determines whether the Medicaid applicant transferred any assets for less than fair market value during this period. Note that since the Medicaid program is administered by the states, your state’s transfer rules may differ from the national norm.

Penalty Period
This penalty is a period of time during which the person transferring the assets will be ineligible for Medicaid. The penalty period is determined by dividing the amount transferred by what Medicaid determines to be the average private pay cost per month of a nursing home in your state.

Example: If you live in a state where the average monthly cost of care has been determined to be $5,000, and you give away property worth $100,000, you will be ineligible for benefits for 20 months ($100,000 / $5,000 = 20).
In theory, there is no limit on the number of months a person can be ineligible.  In this example, the period of ineligibility for the transfer of property worth $400,000 would be 80 months ($400,000 / $5,000 = 80).

Consider your resources and timing before gifting.

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