Transfers of Assets under Medicaid

April 13, 2006

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Applicants can transfer assets before entering a nursing home, intending to protect those assets and make the applicant eligible for Medicaid. Transfers within three years (to individuals) or five years (to trusts) of application can be very carefully timed and structured to fall within one of the permissible exceptions.

However, a warning is in order. This area is extremely complex and requires the advice of an attorney. Transfers outside an exception can result in a penalty or actually make an applicant totally ineligible for Medicaid.

Certain transfers are permissible, such as:

transfers of assets to the extent value was received in return; thus, payments by the applicant for goods and services purchased have no effect on eligibility, because the applicant receives equal value in return
direct transfers of assets to individuals more than three years before application (This forms an important basis for asset transfer planning in this area.)
transfers into an irrevocable trust more than five years before application; generally, if trust assets or income are available to or under any direct control of the applicant, the trust assets or income would not be exempt (unless one of the other exemptions applied), so this type of trust usually has to be irrevocable, meaning it cannot be cancelled or altered after it is created; further, this type of trust usually would require an independent trustee (someone other than the applicant or his spouse) and someone other than the applicant as the beneficiary (see below)
any transfer to a spouse, but because the couple's assets are combined anyway, such a transfer does not serve a useful asset protection function
any transfer to disabled child
transfers of a home, only if the transfer was to one of the following individuals:
- the applicant's spouse
- a child under the age of 21
- a child over the age of 21 who is disabled
- any other child who was residing at the home at least two years immediately before the application and who provided care for the applicant during those two years
- a brother or sister who is part owner of the home and has resided in the home for at least one year.

Note that the home is exempt, as long as the other spouse continues to reside there. Thus, a transfer of the Medicaid recipient's family home is not necessary, in these circumstances.

However, a problem arises if the other spouse dies. This takes the home out of the exemption. One approach here would be for the spouse residing in the nursing home to transfer the interest in the home to another individual, who qualifies under the rules described above, such as an adult child who resided in the home with, and took care of, the applicant for the past two years. This must be done cautiously, if the other spouse continues to reside in the home, as such a transfer gives the transferee important ownership rights in the home. Always consult an attorney before making this or any type of transfer.