How Will Gifting Affect My Eligibility For Medicaid?

We’ve all heard the phrase, “It’s better to give than receive.” But did you know that gifting could actually hurt your chances of qualifying for Medicaid? To determine Medicaid eligibility, an applicant must disclose all financial transactions within the past five years. This is often referred to as the “look-back period”. You may be subject to a transfer penalty for ‘gifting’ or ‘transferring’ certain assets. Under federal law, transfers of a sizable amount made within five years of your beginning the application may be subject to the transfer penalty (although the definition of what is considered a sizable amount may vary from state to state). This penalty is stricter than the gift tax, so even a gift which does not result in you paying a tax could count as a transfer that will harm your Medicaid eligibility.

What exactly qualifies as ‘gifting’?

Gifting can be defined as a transfer of assets from one party to another. While you may think that a transfer penalty is only subject to those who purposely try to deceive Medicaid (such as by transferring their most valuable assets to their children before the time of their application), in actuality Medicaid penalizes even more seemingly innocent transactions. For example, gifts to charity, or even for holidays and birthdays, can all trigger a transfer penalty. In addition, spending a lot of cash all at once or over time could also send Medicaid red flags. If you cannot provide documentation proving that you fairly received something in return, this could also be commented as a transfer penalty.

So how long is the penalty period?

The penalty period, in months, is calculated by a formula which takes the net worth of the transferred assets and divides it by what Medicaid determines to be the average monthly private pay cost of a nursing home in your state. For example, if the average monthly cost of care is five thousand dollars and you have recently given away sixty thousand dollars in assets, the transfer penalty makes you ineligible to receive Medicaid benefits for twelve months, a total of one year.

Are there any exceptions to this rule?

Although the gifting penalty may seem daunting, there are multiple ways to transfer your assets without having to risk your Medicaid eligibility. Transfers to a spouse or a child who is blind or permanently disabled, or those which occur via a trust set up for anyone under the age of 65 who is permanently disabled are all exceptions to the transfer penalty. There may also be additional exceptions made to those transferring their homes to a child under the age of 21, a sibling who already has an equity interest in the house, or a child who has lived in the home for at least two years prior to the transfer. In addition, depending on the state in which you reside, the penalty can be forgiven if the transferred assets are returned to the original owner in their entirety.