We’ve all heard that it’s better to give than to receive, but if you think you might someday want to apply for Medicaid long-term care benefits, you need to be careful, because giving away money or property can interfere with your eligibility.
If you transfer certain assets within five years before applying for Medicaid, you will be ineligible for a period of time under federal Medicaid law, depending on how much money you transferred. This is known as a transfer penalty. Even small transfers can affect eligibility. While federal law allows individuals to gift up to $15,000 a year without having to pay a gift tax, Medicaid law still treats that gift as a transfer.
Any transfer that you make, however innocent, will come under scrutiny. For example, Medicaid does not have an exception for gifts to charities, so if you give money to a charity, it could affect your Medicaid eligibility down the road. Similarly, gifts for holidays, weddings, birthdays and graduations can cause a transfer penalty. If you buy something for a friend or relative, it also could result in a transfer penalty.
Spending a lot of cash all at once or over time could prompt the state to request documentation showing how the money was spent. If you don’t have documentation 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. Even after you enter a nursing home, you may make certain assets transfers without having to wait out a period of Medicaid ineligibility. Those transfers can be to:
- a spouse;
- a trust for the sole benefit of a child who is blind or permanently disabled;
- a trust for the sole benefit of anyone under age 65 who is permanently disabled.
Special exceptions apply to the transfer of a home. A Medicaid applicant’s home may be transferred to those listed above, and the applicant may freely transfer his or her home without incurring a transfer penalty to the following individuals:
- a child under age 21;
- a child who is blind or disabled (the house does not have to be in a trust);
- a sibling who has lived in the home during the year preceding the applicant’s institutionalization, and who already holds an equity interest in the home;
- a “caretaker child,” meaning a child of the applicant who lived in the house for at least two years prior to the applicant’s institutionalization and who during that period provided care that allowed the applicant to avoid a nursing home stay.
Before giving away assets or property, check with your attorney to ensure that it won’t affect your Medicaid eligibility.