In Virginia, in order to be eligible for Medicaid’s long term care services or Medicaid expansion, you cannot have transferred assets for less than fair market value within five years of the date of your Medicaid application. Congress does not want you to move into a nursing home on Monday, give all your assets to your children (or whomever) on Tuesday, and qualify for Medicaid on Wednesday. So it has imposed a penalty on people who transfer assets without receiving fair value in return.
This penalty is a period of time during which the person transferring the assets will be ineligible for Medicaid. The penalty period is determined by dividing the amount transferred by the average private pay cost of a nursing home in your state (according to Medicaid).
Example: If you live in Virginia, where for 2019 the average monthly cost of care has been determined to be $6,422.00 (or $9,032.00 if you live in Northern Virginia), and you give away property worth $100,000.00, your penalty period is calculated as $100,000.00 ÷ $6,422.00 = 15.57: you will be ineligible for long term care benefits for 15.57 months (or 11.07 months in Northern Virginia) .
Another way to look at the above example is that for every $6,422.00 transferred within 60 months of a Medicaid application, an applicant would be ineligible for Virginia’s Medicaid nursing home benefits for one month. There is no limit on the number of months a person could be ineligible because of impermissible transfers made within 60 months of the application.
Example: The period of ineligibility for a single impermissible transfer of property worth $400,000.00 would be nearly 63 months after the date the Medicaid application was filed ($400,000.00 ÷$6,422.00 = 62.29).
A person applying for Medicaid in Virginia must disclose all financial transactions he or she was involved in during the 60 months immediately prior to the Medicaid application — frequently called the “look-back period.” The state Medicaid agency then determines whether the Medicaid applicant transferred any assets for “less than fair market value” during this period. The look-back period for impermissible transfers differs from state to state. Also keep in mind that, because the Medicaid program is administered by the states, your state’s impermissible transfer rules and “fair market value” rules may be completely at odds with the rules even in neighboring states. To take just one important example, New York State does not apply the transfer rules to recipients of home care (also called community care).
The penalty period created by a transfer within the look-back period does not begin until (1) the person making the transfer has begun receiving skilled nursing care, (2) she is otherwise financially eligible for Medicaid coverage, (3) she has applied for Medicaid coverage, and (4) she has been approved for coverage but for the transfer.
For instance, if Dad transferred $100,000 on July 1, 2018, moved to a nursing home on July 1, 2019, and spent down to Medicaid eligibility and filed an application for long term care benefits in Virginia as of December 1, 2019, Dad’s 15.57-month penalty period would begin on December 1, 2019, and it would not end until the middle of March, 2021.
It is important to understand that the penalty period does not begin until the nursing home resident is essentially out of funds, meaning that Dad will have no money to pay the nursing home for however long the penalty period lasts. In states that have so-called “filial responsibility laws,” nursing homes sometimes have the ability to sue the resident’s children for reimbursement. These rarely-enforced laws, which are on the books in 29 states, hold adult children responsible for the financial support of indigent parents, including medical and nursing home costs.
Exceptions to Penalties
Transferring assets to certain recipients will not trigger a period of Medicaid ineligibility. These exempt recipients include the following:
- A legally wed spouse
- A blind or disabled child of any age
- A trust for the exclusive benefit of a blind or disabled child of any age
- A trust for the sole benefit of any disabled individual under age 65 (even if the trust is for the benefit of the Medicaid applicant, under certain circumstances).
In addition, special exceptions may apply to the transfer of the applicant’s residence. The Medicaid applicant may freely transfer her home to the following individuals without incurring a transfer penalty:
- The applicant’s spouse
- A child who is under age 21 or a child of any age who is blind or disabled
- Into a trust for the sole benefit of any disabled individual under age 65 (even if the trust is for the benefit of the Medicaid applicant, under certain circumstances)
- A sibling of any age who has lived in the home during the year preceding the applicant’s institutionalization, but only if the sibling already held an equity interest in the home
- A “caretaker child” — a child of the applicant who lived in the applicant’s house for at least two years prior to the applicant’s institutionalization and who can prove that during that two year period they provided care that allowed the applicant to avoid a nursing home stay.
In Virginia, there is a very important remedy for the transfer penalty: the penalty can be “cured” if the value of the impermissible transfer is returned to the applicant in its entirety, or the penalty will be reduced if the part of the value of the transferred asset is returned (of course, then the applicant is over the resource limit again, and will have to re-start the process of spending down to the allowable resource limit). However, not every state follows the same regulations. Check with an elder law attorney who is experienced with Medicaid in your state.