How transfers affect Medicaid eligibility
At a glance, here are some of the Connecticut medicaid transfer rules you should know:
1. Transfers can result in a penalty (a period of Medicaid ineligibility)
This means that if you transfer or gift assets out of your name during the five year Medicaid look-back period – whether it be to a family member (other than your spouse) or to a Trust – you are creating a period of ineligibility for Medicaid benefits.
How long are you penalized? Well, for every $13,512 that you gift or transfer out of your name, you will be ineligible for Medicaid benefits for one month.
2. There are some transfer exempt from penalties:
· Transfers between spouses are exempt, meaning that you will not incur a penalty if you transfer assets between you and your spouse.
· If there is a caregiver child who has been living with and taking care of you for at least 2 years prior to your need for home care or your entry into a skilled nursing facility. (Click here to read how one of our clients did this.)
In these situations, your residence and possibly, additional assets may be able to be gifted to the caregiver child with no penalty for Medicaid eligibility.
· If there is a child or a caregiver (such as a relative or a family friend) who has been taking care of you for at least two years prior to your need for home care or your entry into a skilled nursing facility.
This person does not need to have been living with you. Again, in these situations, you may be able to transfer assets to the caregiver with no penalty for Medicaid eligibility.
3. Penalty begins when “otherwise financially eligible”
It’s important to note that the transfer penalty does not begin until you are “otherwise financially eligible” for Medicaid benefits.
This means that if you transfer $40,536 in assets to your daughter in April and apply for Medicaid benefits the following October when you are financially eligible, the three month penalty ($40,536/$13,512= 3 month penalty) will not begin to run until the application is granted – which could take as much as 6-9 months.
The penalty does not begin to run in April when the gift was made nor in October when the Medicaid application was filed.
4. There is no credit for partial gift returns
So how do you undo a “penalty” if it affects your need for immediate Medicaid eligibility?
Well, let’s go back to our previous example – you gave your daughter $40,536 which triggers a three month penalty. If your daughter returns the entire amount to you, then the transfer is undone and there is no longer a penalty as the gift has been returned.
But what if your daughter can’t return the entire gift? What if she can only make a partial return of the gift?
The State of Connecticut does not give credit for a partial return. All of the gift must be returned to you for the transfer penalty to be voided.
5. There is an annual gift exclusion of $15,000
(OK with IRS, but NOT when applying for Medicaid)
The annual gift exclusion amount which allows you to gift $15,000 per year per individual and avoid filing a gift tax return does create a penalty for Medicaid eligibility purposes as outlined above.