By Matthew S. Raphan, Esq. Attorney at The Law Offices of Brian A. Raphan, PC
Every so often a client says to me, “I’ve been gifting money to my children and grandchildren so I can apply for Medicaid.” While gifting may offer benefits to you and your family, if you think you may someday apply for Medicaid benefits, you should be aware that giving away money or property can interfere with your eligibility.
Under federal law, if you transfer certain assets within five years prior to applying, you may be ineligible for Medicaid benefits for a period of time. This is called a transfer penalty, and the length of the penalty depends on the amount of money transferred. (This waiting period can also be costly as you may pay for your care out of your own pocket.) Even small transfers can affect eligibility. Although federal law currently allows individuals to gift up to $14,000 a year without having to pay a gift tax, Medicaid still treats that gift as a transfer.
Any transfer that you make, however nominal, may be scrutinized. For example, Medicaid does not have an exception for gifts to charities. If you make a charitable donation, it could affect your Medicaid eligibility down the road. Similarly, gifts for holidays, weddings, birthdays, and graduations can all trigger a transfer penalty. If you buy something for a friend or relative, this could also result in a transfer penalty.
Some people have the notion that they can also go on a spending spree for themselves or family. Not so fast. Spending a large sum of cash at once or over time may prompt the state to request documentation showing how the money was spent. If you don’t have receipts showing that you received fair market value in return for a transferred asset, you could be subject to a transfer penalty.
While most transfers are penalized, certain transfers are exempt from this penalty. For example, even after entering a nursing home, you may transfer any asset to the following individuals without having to wait out a period of Medicaid ineligibility:
- your spouse;
- your child who is blind or permanently disabled;
- a trust for the sole benefit of anyone under age 65 who is permanently disabled.
In addition, you may transfer your home to the following individuals (as well as to those listed above):
- your child who is under age 21;
- your child who has lived in your home for at least two years prior to your moving to a nursing home and who provided you with care that allowed you to stay at home during that time;
- your sibling who already has an equity interest in the home and who lived there for at least one year before you moved to a nursing home.
Before transferring assets or property, check with us or your elder law attorney to ensure that it won’t affect your Medicaid eligibility.
For more information on Medicaid’s transfer rules, click here.
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