Can I gift away assets to qualify for Medicaid?

Spouses may transfer assets between themselves without penalty as a party of Medicaid qualification; however, the non-spousal transfer restrictions have been extended to sixty (60) months as of May 1, 2006 in the State of Washington (February 8, 2006 in Idaho).   The actual wait period is a function of the amount transferred, and the 60 month limitation may be the maximum wait under existing law; provided, your transfers were done in strict accordance with law.  The actual penalty begins on the date you become eligible for Medicaid long term care services, NOT the date of the actual gift, which was the case prior to May 1, 2006. 

Transfers not in compliance with the law may result in far more extensive penalties, so any plan of gifting or transfer must be done in consultation with a highly skilled Elder Law Attorney, who are usually the most familiar with these rules.  In many instances, the wait period may be less, depending upon the amount transferred.  On the other hand, gifting without a working knowledge of the operation of the formula adopted in State and federal law can result in terrible consequences.  As an example of how these laws work, the "triggering" event to start a penalty from a prior gift is not the date of the gift itself, but rather that moment in time when you are sick enough to qualify for Medicaid services, are financially eligible (which, for most individuals, means poverty stricken), actually apply for services, and are denied due to the prior transfer.  Assume you can make a $30,000 gift to your son today.  If he spends it and you spend all your other money on care, then you apply for Medicaid, which triggers the penalty, you must wait about 5.2 months to obtain benefits under Medicaid.  Of course, you will have no money to pay for your care during that 5.2 month time period, so this story is long from over.

The changes first made in 1993 began utilizing something called a "lookback" period, which eliminated the maximum ineligibility period of 30 months which existed prior to 1993 in respect of transfers to non-spouses.  The lookback for most gifts was extended to 36 months, and to 60 for some gifts to and from a trust.  In May, 2006, the lookback was extended to 60 months for all transfers in Washington.  The lookback is not the penalty, but it could be the maximum wait, depending on the amount transferred.  That is significant because an application made within the lookback could, under some circumstances, result in an ineligibility period in excess of 36 or 60 months.  The lookback rule is very complicated, and expert advice should be obtained before gifting is begun.  Medicaid law is full of deep, sharp traps for the unwary, so you are wise to seek out experienced and qualified individuals to assist you in this complicated area.

Transfers of assets jointly owned with the disabled spouse are generally prohibited for up to 60 months following initial Medicaid acceptance.  The exception is interspousal transfers, which are permitted without penalty.  Transfers of the separate property of the community (non-disabled) spouse to a third party (a child, for example) create ineligibility periods for the transferor only, and not the disabled spouse, but only after Medicaid acceptance is granted to the disabled spouse.   

Transfers from either spouse prior to application will penalize both.  Interspousal transfer of assets to the non-disabled spouse prior to or after Medicaid acceptance converts the assets into the separate property of the non-disabled spouse, and usually protects them.  Prior to Medicaid application, DSHS makes no distinction between separate and community property, so any transfer outside the marriage penalizes both spouses.  After Medicaid is granted however, transfers of the separate property of the non-disabled spouse will no longer result in a penalty against the Medicaid recipient, so that separate property could be re-transferred without a penalty to the disabled Medicaid recipient.  Because of new lien and estate recovery laws, as well as the application of debtor-creditor law to such transfers by the State, it is recommended that the interspousal transfer occur prior to Medicaid application if possible.

Remember that gifts to others can result in tax ramifications.  We are currently permitted to gift up to $12,000.00 per person per year without notification to the IRS.  This annual exclusion gift as it is known does NOT apply to DSHS.  All gifts over about $200.00 given in any calendar month must be disclosed to DSHS at the time of application for benefits.  Gifts of the family home to children create two different problems.  First it creates a penalty period during which the grantor will not be eligible for Medicaid benefits.   It also means the loss of the step-up in tax basis which the child would have received if they had inherited the house at the time of the parent's death. This could expose the child to the requirement to pay capital gains tax at the time of a future sale of the home.  

It is important to note that Washington law is different from Idaho law, which varies from California law, etc.  What works here may not work elsewhere, so expert assistance should be sought anytime transfers are contemplated.

Despite all of these changes, many excellent strategies do exist to qualify disabled individuals for Medicaid; however, their effectiveness depends largely upon the size of the estate involved and the timing of the transfer or strategy employed.  As a result of these changes, proper estate planning and, most importantly, a properly drafted durable power of attorney have become critical. 

To learn more about Medicaid eligibility, please review those discussion topics. Medicaid Eligibility: Physical Need.  Medicaid Eligibility: Financial Need.