Archive for June, 2009

$13,000 Gift Tax Exclusion and the Medicaid Transfer Penalty Period

A common misconception is that you may make transfers of $13,000 per year per person without invoking Medicaid’s transfer penalty period. This simply is not true. The $13,000 per person per year is annual gift tax exclusion and is NOT an exclusion for transfers under Medicaid.

Under the new Deficit Reduction Act of 2005 (“DRA”) rules, a person who is otherwise eligible for Medicaid will be subject to a transfer penalty period based upon transfers made for less than fair market value. As of 2011, the Medicaid agency will look back through the last 5 years for asset based transfers. The DRA increased the look back period for transfers on non-trust assets from 3 to 5 years, for transfers made on or after February 8, 2006. Therefore, any transfers made prior to February 8, 2006 will be governed under pre DRA rules.

For example, let us assume a person made transfers of $13,000 to each of his three grandchildren last year, for a total annual gift of $39,000. He would be penalized by the Medicaid agency in the following manner. First Medicaid determines the regional nursing home transfer rate in Suffolk County which is approximately $11,000 per month. This number is usually less than what an individual not on Medicaid would pay privately for the same services in a Suffolk County nursing home. Second The Medicaid agency will calculate the total transfers made and divide that number by the nursing home transfer rate of $11,000. In this example the penalty would be $39,000 divided by $11,000 to get 3.5 months of penalty time from the date the Medicaid application was filed (not from the date of the transfer).

Therefore annual gifts of $13,000 or less may not be a good component to your long term health care plan if you wish to rely on Medicaid to pay your nursing home bills.

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Ask Craig A. Andreoli

Q: Can I lower my available resources, for Medicaid purposes, by half if I place my money in a joint account with my adult child?

A: It is common for people to believe that if they create a joint account with their adult child, they will only expose half of the monies kept in the bank account. Medicaid, for eligibility purposes, will consider joint bank accounts as 100% owned by the Medicaid applicant. Furthermore, if any withdrawals are made during the look back period, Medicaid will treat the withdrawal as a non-exempt transfer and impose a penalty period. This assumes, of course, that the money was originally deposited by the Medicaid applicant. If the applicant can prove that the joint owner owns part or all of the money, then that portion which the joint owner contributed will not be considered an available resource.


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Ask Craig A. Andreoli

Q: Why do I always hear stories about other people getting Medicaid benefits for nursing home care without having to wait through a Medicaid penalty period?

A: There are various reasons why a person can get Medicaid benefits without being penalized. The most obvious is that they qualify for Medicaid. Meaning, among other things, they have a resource level below $13,050. Medicaid will deny you benefits if you have more than $13,050 (increased recently from $4,350) of available resources. A penalty period will be imposed for non-exempt transfers of assets, during a 5 year look back period, meant to reduce the applicant’s available resources below the $13,050 resource level. Notice I mentioned non-exempt transfers. There are exempt transfers, i.e. transfers that a Medicaid applicant can make without having Medicaid invoke a penalty period. You could use these exempt transfers to divest yourself of assets. Transfers to a spouse and/or a disabled child will not affect Medicaid eligibility. A Medicaid applicant can also transfer assets to certain types of trusts that will not interfere with an applicant’s eligibility. One such trust is a Special Needs Trust. Strict adherence to the statutory requirements must be taken to effectively create a Supplemental Needs Trust and they are only available to applicants who are disabled. Using any of these exempt transfers may help to reduce your resource level and decrease or eliminate any Medicaid penalty period.

It should be noted that any course of action taken to divest assets may have adverse consequences for the applicant, his spouse or even any perceived beneficiaries of the applicant’s estate with respect to taxes or government benefits. Therefore, it is always a good idea to have a competent legal professional outline a balanced estate plan that can achieve your desired goals.

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