When a person applies for Medicaid the agency looks back at transfers the applicant made during the previous five years to determine if any property was given away or transferred for less than the value assigned by Medicaid. If so, a transfer penalty is incurred, and that means Medicaid will not pay for care for a length of time based on how much was transferred.
There are some permissible transfers allowed by law resulting in no penalty being imposed. These include:
The home when a child under 21, blind or disabled lives there;
The home when a sibling with an equity interest was residing there for at least one year prior to the institutionalization;
The home when a son or daughter of such claimant who was residing in the applicant’s home for a period of at least two years immediately before the date of applicant’s admission to the medical institution or nursing facility, and who provided care to such claimant which permitted the applicant to reside at home rather than in an institution or facility (the caregiver exemption);
Transfers of money into a Special Needs Trust.
Looking more closely at the caregiver child exemption, you often see children who have lived with the parent for many years to keep them safe at home and out of a nursing home who are concerned about their own security when the parent applies for Medicaid. If the child can meet the caregiver child standard, the home can be transferred to him or her without penalty, but often there is debt on the home preventing a transfer. The lesson here is to pay off debt on the home as quickly as possible to be able to take advantage of the caregiver child permissible transfer.
If the transfer cannot be done, and the parent goes in a nursing home, the property counts as a resource. But if the parent receives Home and Community Based Services through Medicaid the house does not count as a resource until the parent dies. At that time Medicaid will claim what it paid for the parent through Medicaid Estate Recovery. The only good news here is the estate recovery can be delayed until the caregiver child no longer lives in the home.