Medicaid Transfer Penalties

Romans 20:35 states “It is more blessed to give than to receive.”  Giving gifts, though, may cause problems for individuals who wish to qualify for Medicaid.

Consider Sarah, for example, who is in failing health and now requires nursing home care.  In December 2005, Sarah sold her house and gave her three children $10,000 each.  In December 2007, she gave them each another $10,000.  Sarah now has only $30,000 left.  She knows it won’t last very long and she will soon need Medicaid.

Look-back Period

When Sarah’s assets are reduced to $1,500 she may qualify for Medicaid.  When her application is made and she is “otherwise qualified”, the Department of Job and Family Services will “look-back” on any gifts she has made within the past 60 months to determine if they create a penalty period.  This penalty period is measured by the number of months Sarah could have paid for care had she kept the money instead of giving it away.  Since the average cost of care inOhio is $5,247 per month, the penalty period is determined by dividing the amount of the gifts by $5,247.

The Old Rules

The Deficit Reduction Act of 2005 drastically changed Medicaid’s penalties on transfers.  Gifts made prior to February 8, 2006 are penalized under the old rules.  The old rules had a 36 month look-back period.  The penalty period on these gifts began on the date of transfer.  Thus, the $30,000 in gifts that Sarah made in 2005 would have created a 5 month penalty during which Sarah could not receive Medicaid.  That penalty would have begun in December 2005, when the gifts were given.  By June 2006, it would have been finished allowing Sarah to receive Medicaid, if needed.

The New Rules

The gifts Sarah made in 2007 are penalized under the new rules.  The DRA not only increased the look-back period to 60 months; it changed the date that the penalty begins to the month in which Sarah is “otherwise qualified” for Medicaid.  This means that the 5.7 month penalty on the gifts will not begin until after Sarah’s remaining assets are reduced to $1,500 and she has made a Medicaid application.

Returning Gifts

Suppose Sarah exhausts her assets and qualifies for Medicaid.  She now faces a 5.7 month period (from the 2007 gifts) during which Medicaid will not pay for her nursing home care.  She can use her income to pay for care, but she receives only $3,500 per month and the nursing home costs $6,000.  Her children begin returning part of the money given to pay for her care.  At the end of four months, one of the $10,000 gifts has been completely returned.  Sarah notifies Medicaid and asks that they recalculate the penalty period based on the remaining two $10,000 gifts.  The penalty on $20,000 is only 3.8 months.  Sarah’s penalty period on those gifts has now passed.


Certain transfers for less than the fair market value (gifts) are NOT penalized as “improper transfers” under the Medicaid rules.

An individual can transfer her home to:

  • Her spouse
  • Her child under the age of twenty-one
  • Her blind or permanently and totally disabled child
  • Her siblings with an equity interest in the house
  • A “caretaker child” – one who has resided in the home for at least two years providing care which permitted the parent to remain at home

An individual can transfer property other than the home to:

  • Her spouse
  • Another for the sole benefit of the spouse
  • Her blind or totally disabled child
  • A trust for the sole benefit of her blind or totally disabled child
  • A trust for the sole benefit of an individual under the age of 65 who is blind or permanently and totally disabled

Medicaid Qualified Trust

If Sarah, herself, is under the age of 65 and permanently disabled she may be able to transfer money to a Special Needs Trust for herself.  Funds from this trust could be used during Sarah’s lifetime to provide her with personal items or services that Medicaid does not cover.

Many people, like Sarah, wish to make gifts to their families.  It is important to understand the ramifications of those gifts should Medicaid be needed.

An Elder Law Attorney can assist in analyzing how gifts affect a Medicaid application.*


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