Since long-term care Medicaid (which helps pay for skilled nursing care and medications) is “means-tested” (assets of the applicant are reviewed to determine if there is eligibility for the government to pay), there is a five year “look-back” period as there is a presumption resources were purposely reduced so that the government would have to pay. The average cost of care for skilled nursing care in Texas exceeds $7,000 per month. If an uncompensated transfer is made within that look-back period, the applicant is penalized by having to private pay until the transfer penalty expires.
However, there are exceptions to every rule, and the following are exceptions to the long-term care Medicaid transfer penalty rules.
- Transfers between spouses – when applying for long-term care Medicaid, the assets of both spouses are looked at to determine eligibility – even if it is separate property. Thus, there is no transfer penalty if one spouse transfers assets to their spouse.
2. Transfers to Disabled Child of Applicant – the government encourages taking care of the disabled child (regardless of age) of the Medicaid applicant. Proof of disability is usually achieved by a letter from the Social Security Administration.
Caveat: If the disabled child is on a Medicaid program such as Supplemental Security Income, then the disabled child can lose his or her benefits if the child receives additional assets.
3. Transfers to a Sole Benefits Trust for a Disabled Child (of any age) of Applicant – if an irrevocable sole benefits trust that is actuarially sound is established for the benefit of a disabled child (no age limit), then the transfer is not penalized.
Caveat: This is usually used when the disabled child is receiving Social Security Disability (which is neither “means-tested” nor is the income from the trust a disqualifying event).
4. Transfers to a Sole Benefits Trust for Anyone under 65 – if the beneficiary is under 65, a transfer to a sole benefits trust will not result in a penalty. The beneficiary of the trust doesn’t need to be related to the Medicaid applicant.
5. Attempt to Transfer for Fair Market Value – even if an asset is transferred at less than fair market value, there is no transfer penalty if there was an intent to transfer at fair market value.
6. Transfer for a Purpose Other than to Qualify for Medicaid – if the applicant’s health was good when the transfer was made within the look-back period, then the transfer penalty may be averted.
7. Imposition of a Penalty would cause an Undue Hardship – if the applicant’s health is endangered.
8. Change of Joint Bank Accounts to Separate Accounts to Reflect Correct Ownership of Funds
9. Purchase of Pre-Need Funeral for Applicant and their Spouse – the pre-need funeral (if based on an insurance policy) must be irrevocably assigned to the funeral home, but this will not result in a transfer penalty.
10. Transfer of Home by Ladybird Deed or Transfer on Death Deed – since the applicant retains full control of the homestead until death, these types of deeds (a Ladybird deed is an enhanced life estate deed) are not penalized. The deeds also avoid a successful claim from the Medicaid Estate Recovery Program.
11. Transfer of Home to a Sibling who has an Equity Interest – if a Medicaid applicant has a brother or sister who lived in and had an equity interest in the applicant’s home, a transfer of the applicant’s interest to his or her sibling is not a penalized event.
12. Transfer of Home to Child who Prevented Applicant’s Institutionalization – If a son or daughter lived in the applicant’s home for two years before the applicant’s institutionalization and prevented the institutionalization, then a transfer of the home to the child is not a penalized event.
Caveat: Loss of step-up in basis and higher property taxes should be considered before you transfer a homestead to a child.
The preceding paragraphs are not the only exceptions to transfer penalty rules of long-term care Medicaid, but it illustrates that there are exceptions to every rule.
If interested in learning more about this article or other estate planning, Medicaid and public benefits planning, probate, etc., attend one of our free upcoming virtual Estate Planning Essentials workshops by clicking here or calling 214-720-0102. We make it simple to attend and it is without obligation.