Understanding Medicaid Transfer Penalties

In order for the State of New Jersey to prevent Medicaid applicants from gifting assets to qualify for Medicaid earlier, the state institutes a transfer penalty.  The penalty is determined by adding up all “transfers” of assets not used exclusively for the Medicaid applicant and dividing them by the penalty divisor.  The current penalty divisor is $343.85/day or $10,458.77/month.

Example: Mary gave away $21,000 during the last five yearsprior to applying for Medicaid.  The countywill divide $21,000 by $343.85 yielding the number 61.  Therefore, Mary will not be covered byMedicaid for 61 days after she is otherwise eligible (she is clinicallyeligible and destitute).  In a nursinghome, this will cost $20-30,000.  At homeor in assisted living the penalty may cost less.

What If Some of the Gifts Are Returned?

This is where it gets tricky. In a 2015 New Jersey case, C.C. v. DMAHS, the Appellate Division disallowed partial transfer returns.  In that case, C.C. gave approximately $99,000 to her nephews.  One of her nephews returned $17,000.  However, the Medicaid agency applied the transfer penalty based on the $99,000 transfer instead of the $82,000 transfer ($99,000 - $17,000).  This practice is sometimes followed and sometimes it is ignored.  I have had the same county reduce the transfer penalty with no questions in one month and maintain the penalty in a different application six months later.

In a recent matter handled by our office, the Medicaid agency did not recognize the return of assets even though the value of the assets returned exceeded the value transferred.   The agency argued the penalty could not be cured because the asset returned to the applicant was different than the asset originally transferred.   (The asset transferred was cash; the asset returned was real estate valued in excess of the cash originally transferred).

The lesson:  Beforeattempting to reduce the penalty by returning some or all of the gifts, speakwith an experienced elder law attorney about the potential pitfalls.

Are there transfers that aren’t penalized?

Yes. Transfers to the community spouse or to a child who is blind or disabled. The primary residence may be transferred to a child under 21; a sibling who already has an equity interest in the home; or to a child who provided a nursing home level of care to the Medicaid applicant for a period of two years prior to institutionalization or application.

The above exceptions are not cut and dry and must be handled delicately with the counsel of a competent elder law attorney.

Are there ways to avoid the harsh results of transfer penalties?

Sometimes. We may recommend strategies that we have developed over the course of years based on your individual circumstances. In fact, sometimes transfer penalties may work in your favor. Feel free to meet with us so we can explain the dangers and potential benefits of transferring assets in light of a potential or imminent long-term care need.