How Gifts Can Affect Medicaid Eligibility

Under federal Medicaid (Medical Assistance in Maryland) law, if you transfer certain assets within five years before applying for Medicaid, you will be ineligible for a period of time (called a transfer penalty), depending on how much money you transferred. Even small transfers can affect eligibility. While federal law allows individuals to gift up to $16,000 a year (in 2022) without having to pay a gift tax, Medicaid law still treats that gift as a transfer.

Any transfer that you make, however innocent, will come under scrutiny. For example, Medicaid does have a very limited exception for gifts to charities. If you give money to a charity, it could affect your Medicaid eligibility down the road. Similarly, gifts for holidays, weddings, birthdays, and graduations can all cause a transfer penalty. If you buy something for a friend or relative, this could also result in a transfer penalty.

Spending a lot of cash all at once or over time will prompt the state to request documentation showing how the money was spent. If you don’t have documentation showing that you received fair market value in return for a transferred asset, you could be subject to a transfer penalty.

For example, Bob goes into a nursing home. He is eligible for Medicaid, he is a nursing home, he requires skilled care / help with many activities of daily living, and a checking account in the sum of $1,000. However, during the Medicaid application process, Medicaid reviewers found that Bob had given his grandchildren funds for graduation, spent money to pay for his children’s vacation, and made a sizeable donation to a charity. Let’s assume that the total was $100,000. Bob is penalized for 10 months ($100,000 divided by the penalty transfer factor of $10,000 = 10 months.) So Bob will not receive Medicaid benefits for 10 months. Who will pay for the nursing home? Bob only has social security of $1,500 a month.

While most transfers are penalized, certain transfers are exempt from this penalty. Even after entering a nursing home, you may transfer any asset to the following individuals without having to wait out a period of Medicaid ineligibility:

• your spouse
• a trust for the sole benefit of your child who is blind or permanently disabled
• a trust for the sole benefit of anyone under age 65 who is permanently disabled

In addition, special exceptions apply to the transfer of a home. The Medicaid applicant’s home may be transferred to the individuals above, and the applicant also may freely transfer his or her home to the following individuals without incurring a transfer penalty:

• A child who is under age 21
• A child who is blind or disabled (the house does not have to be in a trust)
• A sibling who has lived in the home during the year preceding the applicant’s institutionalization and who already holds an equity interest in the home
• A “caretaker child,” who is defined as a child of the applicant who lived in the house for at least two years prior to the applicant’s institutionalization and who during that period provided care that allowed the applicant to avoid a nursing home stay.

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David Wingate is an estate planning and elder law attorney at Estate and Elder Planning by David Wingate. The Estate and Elder Planning office services clients with powers of attorneys, living wills, Wills, Trusts, Medicaid and asset protection. The Elder Law office has locations in Frederick, Washington and Montgomery Counties, Maryland.

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