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Wednesday, September 9, 2020

Beware the Drastic Changes to the Medicaid Transfer Rules


Effective October 1, 2020, New Yorkers who apply for Medicaid home care services will be subject to the same type of transfer penalty which up until now has been imposed only on applicants who require nursing home care.  If you transfer assets in order to qualify for Medicaid assistance, then you will not only be subject to a 
five-year look back/penalty period if you need to be in a nursing home but you will also be subject to a thirty-month look back/penalty period if you require assistance at home.
 
Most people are aware that if you want to qualify for Medicaid, a federal program administered by the states, you must spend down your assets.  Fortunately, the Medicaid rules permit one to give away his/her assets, either by making outright gifts or by transferring them to a trust, in order to qualify for the program. With the exception of the wealthy or those who have good long-term health care insurance policies, most people can not afford to pay for this care, Medicaid has become an important aspect of planning for many Americans.

One of the features of the Medicaid program is that there is a five-year look back period for transfers.  There has been talk about extending it to six or seven years, but that has not yet happened.  What this means is that Medicaid will look back five years from the time you apply for benefits to see if you have made any gifts or transfers of assets.  If you have, then you are penalized by being deemed ineligible for financial assistance during the penalty period.  Originally, the penalty period was measured from the date of transfer; currently, the penalty is measured from the time you enter a nursing home.  In order to be truly protected then, it would be wise to transfer your assets five years before you apply for benefits.  Until recently, this five-year look-back period/penalty period applied only to nursing home care, and not to home care.  It was an incredible feature that allowed people to protect their assets and still receive care at home.

Clearly, the solution to this problem is to take early action to protect one’s assets.  The best way to do this is to transfer assets to an irrevocable medicaid trust specifically designed to protect one’s assets without adverse tax consequences.  Gifting assets outright to children or other family members is dangerous for many reasons.  Besides the adverse gift and capital gains tax consequences, the asset is at risk if the person receiving the gift gets divorced, sued, dies or becomes disabled.  Transferring one’s home to such a trust is almost always a good first step.  
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