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Gifting & Medicaid Rules and Restrictions

Although Medicaid offers essential health care coverage to low-income children and the disabled, as well as to the elderly, the program has become the default funding source for nursing-home care for many middle-income Americans. In order to obtain Medicaid help to pay for nursing home costs, applicants must have less than $2000 in assets. A number of rules and regulations have been established to govern transferring assets to another, or "gifting" assets without a fair exchange of value, in order to qualify for Medicaid-funded care.

  1. Gifting Penalties

    • Medicaid penalizes those who transfer assets without a fair exchange of value, in order to become eligible for Medicaid services and nursing-home care. Medicaid denies eligibility for a period of time equivalent to the net amount of the transfer divided by the average monthly cost of private nursing home care. For example, if an applicant gives away property worth $100,000, and the monthly cost of private nursing home care is $5000, Medicaid rules that individual ineligible for 20 months.

    The "Lookback" Period

    • The Deficit Reduction Act of 2006 also establishes a "lookback" period, for which individuals must report financial transactions, including gifts and other transfers of assets, before applying for Medicaid nursing home coverage. This period covers 3 years for ordinary, person-to-person transfers and 5 years for transfers involving trusts.

    Exceptions to Transfer Limitations

    • Medicaid does allow some types of gifting. If an individual transfers assets to a spouse, a blind or disabled child, or to a trust for such a child or a disabled individual under 65, there are no penalties. Transfers of a home under these circumstances are also exempt from penalty.

    Penalty Remedies

    • If Medicaid assesses a penalty for an asset given as a gift, the remedy for the penalty is returning the asset to the giver, in its entirety. For any part of an asset returned, Medicaid reduces the penalty in equal proportion.

    The Legal Bind

    • Given the complexity of Medicaid regulations involving gifts and transfers of assets, elder law specialists recommend consulting an attorney. However, according to Eldernet's "Overview of Medicaid," a 1993 law states that transferring assets or helping someone to do this is illegal. Medicaid can penalize lawyers for charging fees for advising clients about asset transfers. Eldernet points out that although this law is not strictly enforced, some attorneys may be reluctant to advise on Medicaid planning.

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