If you will need Medicaid to pay for long-term care for you or your spouse in the next five years, you need to be careful with gift giving 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 $16,000 a year (in 2022) without having to pay a gift tax, Medicaid law still treats that gift as a transfer. In fact, for every $6600 you give away you will incur a one month period of ineligibility for Medicaid. A month of penalty means Medicaid will not pay for your care, no matter how destitute you are.
Medicaid reviews all bank records for five years prior to application. Any transfer that you make, however innocent, will come under scrutiny. For example, Medicaid does not have an exception for gifts to charities. If you give money to a charity, it could affect your Medicaid eligibility down the road. Similarly, gifts for Christmas, weddings, birthdays, and graduations can all cause a transfer penalty, however reasonable gifts are usually allowed. If you buy something for a friend or relative, this could also result in a transfer penalty. Also selling property for less than the tax assessor’s appraised value is considered an uncompensated transfer of the amount for which you sold the property for less than the tax value. You will need documentation showing that you received fair market value in return for a transferred asset to avoid incurring a penalty. Repaying a debt not supported by a promissory note will also be considered a transfer subject to a penalty.
While most transfers are penalized, certain transfers are exempt from this penalty. 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
- a trust for the sole benefit of your child who is blind or permanently disabled
- a special needs trust for the benefit of the Medicaid applicant
In addition, special exceptions apply to the transfer of a home. The Medicaid applicant’s home may be transferred to the following individuals without incurring a transfer penalty:
- A spouse
- A child who is 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,” who is defined as 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.