Transferring Assets

The most significant change in the treatment of transfers made by the DRA has to do with when the penalty period created by the transfer begins. Under the prior law, the 20-month penalty period created by a transfer of $100,000 in the example described above would Congress has established a period of ineligibility for Medicaid for those who transfer assets. The “Deficit Reduction Act” significantly changed the rules governing the treatment of asset transfers. For transfers made prior to enactment of the DRA on February 8, 2006, state Medicaid officials will look only at transfers made within the 36 months prior to the Medicaid application (or 60 months if the transfer was made to or from certain kinds of trusts). But for transfers made after passage of the DRA the so-called “look back”  period for all transfers is 60 months.

While the look back period determines what transfers will incur penalties, the length of the penalty depends on the amount transferred. The penalty period is determined by dividing the amount transferred by the average monthly cost of nursing home care in the state. For instance, if the nursing home resident transferred $100,00 in a state where the average monthly cost of care was $5,000, the penalty period would be 20 months ($100,000/$5,000 = 20) beginning on the first day of the following month. Under the DRA, the 20-month period will not begin until (1) the transferor has moved to a nursing home, (2) he has spent down to the asset limit for Medicaid eligibility, (3) has applied for Medicaid coverage, and (4) has been approved for coverage but for the transfer.

 

Our office is well equipped to assist clients to preserve assets even in spite of these changes to the rules.

Transfers should be made carefully, with an understanding of all the consequences. People who make transfers must be careful not to apply for Medicaid before the five-year look back period
elapses without first consulting with an elder law attorney.

While you could generally preserve approximately half of your assets, the exact amount will depend on a variety of factors, including the cost of care, the transfer penalty in your state, income, and possible other expenses. Any transfer strategy must take into account the nursing home resident’s income and all of her expenses, including the cost of the nursing home. Also, be very, very careful before making transfers. Bear in mind that if you give money to your children, it belongs to them and you should not rely on them to hold the money for your benefit. However well intentioned they may be, your children could lose the funds due to bankruptcy, divorce or lawsuit. Any of these occurrences would jeopardize the savings you spent a lifetime accumulating. Do not give away your savings unless you are ready for these risks.

In addition, be aware that when your children are holding your funds in their names could jeopardize your grandchildren’s eligibility for financial aid in college. Transfers can also have bad tax
consequences for your children. This is especially true of assets that have appreciated in value, such as real estate and stocks. If you give these to your children, they will not get the tax advantages they would get if they were to receive them through your estate. The result is that when they sell the property they will have to pay a much higher tax on capital gains than they would have if they had inherited it.

Transfers should be made carefully, with an understanding of all the consequences. In any case, never transfer assets for Medicaid planning unless you first consult with an Elder Law attorney.
We have many creative options for transferring assets that will also serve to protect those assets.

 

Have questions or need further information [contact me].