People who try do-it-yourself Medicaid planning often fail, in a big way. It’s a complex system, and not easily gamed. It is best to work with an elder lawyer.
When someone applies for Medicaid, the government wants to be sure that they need the benefits. If you own an investment home and sell it to your daughter for a single dollar, you aren’t going to fool the people at Medicaid. There’s a look-back penalty, advises nj.com in the recent article, “If mom sells her house for $1, what Medicaid penalty will apply?”
A Medicaid applicant is required by the government to document all of her financial transactions during the "look-back period." That period is five years immediately prior to the date of application.
If the applicant’s financial records show a transfer of assets within that period, the Medicaid administrators will presume that the assets were transferred to promote eligibility for Medicaid benefits. This could be a check or withdrawal, for which there is no explanation other than a gift.
The value of the transfer will be divided by the statewide daily nursing home rate to get the number of months of the ineligibility, also known as the penalty period. In New Jersey, that rate is currently $343.85, or $10,459 per month.
The five-year year look-back period commences when the transfer is made. However, the penalty period of ineligibility starts on the date the applicant is otherwise eligible for medical assistance under the State plan, but for the application of the penalty period.
So, in our $1 house example, if the New Jersey Medicaid applicant transferred $300,000, the monthly penalty period of ineligibility for this transfer would be calculated by dividing $300,000 by $10,459, which equals 28.68 months of ineligibility. There is no rounding down, by the way. Additionally, transferring the home to the daughter means that the home is now the daughter's asset, leaving it vulnerable to her creditors in the event of a slip and fall, bankruptcy, divorce, car accident, business failure, etc.
The penalty period would start when the applicant medically needs an institutional level of care, has countable resources below $2,000 and has filed a Medicaid application to establish that she would have been otherwise eligible but for the asset transfer. Note: there’s no limit on the length of the penalty period.
Thus, assuming the applicant otherwise would have qualified for Medicaid but for the asset transfer, the applicant wouldn’t be eligible for Medicaid for an additional 28.68 months.
However, if the application was made more than 60 months after the transfer date, then the transfer would be outside of the 60-month lookback period and, if no other transfers were made, then no penalty period would be imposed, and the applicant would be eligible 61 months after the transfer date.
An elder law attorney should be contacted to create a strategic plan that incorporates any available asset protection tools. It is far better to do this in advance, rather than on an emergency basis. Any strategies will need to be done in accordance with Medicaid rules.
Medicaid Pre-Planning is one of Legacy Counsellors' core estate planning offerings. As indicated above, there is a five-year lookback for transfers. Therefore, the best time to plan is when you are still healthy. Please contact us today to schedule an initial consultation or to discuss adding Medicaid planning to your current estate plan.
Reference: nj.com (December 25, 2018) “If mom sells her house for $1, what Medicaid penalty will apply?”