Finally, this article does not represent an endorsement of any particular course of action.  As a matter of principle, I believe that the choices you make concerning your resources and your lifestyle must first take your own feelings, wishes, and comfort level into account before you can even think about whether a particular course of action will "save your family money."  As with planning for death tax savings, planning that takes into account the high cost of long-term care and the requirements of the Medicaid program should not put money saved, before your quality of life. "Giving it all away" can impact your life seriously, whether by affecting Medicaid eligibility, or by precluding the possibility of a reverse mortgage that might keep you cared for at home longer.  You may wish to view my online slide-show about paying for care to consider some of the consequences of being on Medicaid.  This article does not weigh the pros and cons of making gifts, but merely sets forth the Medicaid rules and regulations that will affect you if you do make gifts.

        As a general rule, citizens have the right to decide what happens to their money. That is, you have the right to make gifts.  The only exception is that you are not allowed to make gifts intended to defraud your creditors.  This means, if you run up a big credit card bill, you cannot legally give away your assets deliberately so you can't pay the debt as it comes due.  If you do, the courts can make the people you gave your money to, give it back, because it was given as a "fraudulent transfer."

        You may have heard of people "giving away" their money "to qualify for Medicaid" if they ever enter a nursing home.  Since the gift is in advance of the nursing home cost, it generally should not be treated as a "fraudulent transfer."  However, in order to discourage people from doing this, the law imposes a "penalty period" of ineligibility for Medicaid that is proportionate to the amount of the transferred property if the transfer is made during something called the the "look back" period, whether the transfer is by the person applying for Medicaid or by the person's spouse. The penalty period and the look-back period are not the same.

• What is the "look back" period?  That is the period of time during which the state "looks back" to see whether you (or your spouse) made a gift.  The Deficit Reduction Act of 2005 changed the "look back" period for gifts on/after 2/8/06 to 5 years.  For gifts prior to that date, 3 years, but 5 years if the gift was made to or from a trust.  Gifts by an institutionalized person already eligible for Medicaid are also "looked back" at. 

 

Example:	Post 2/8/06 gift 5 years + 1 day before applying for Medicaid	OUTSIDE the "look-back" period; has no effect on eligibility
Example:	Post 2/8/06 gift 4 years + 364 days before applying for Medicaid	INSIDE the "look back" period; affects eligibility.  Now you have to determine the resulting "penalty period."

• What is the "penalty period"?  Then "penalty period" is the period of disqualification from Medicaid benefits for institutional or long-term home care which  is imposed if a "transfer" is made during the "look back" period.  The "penalty period" is not the same as the look-back period.  The length of the penalty period is calculated by dividing the amount transferred, less any value received, by a figure known as the "average monthly cost of care" in effect during the month of application.  As of 7/1/06, the "average monthly cost of care" figure in Connecticut is $8,646.00. Prior to 2/8/06, the "penalty period" began to run the 1st day of the month you made the gift.  For gifts on/after 2/8/06, the penalty period does not begin to run until you are receiving care that would entitle you to Medicaid if you are otherwise qualified and have applied and would qualify but for the gift.  The same computation applies if the person is receiving care at home or in a skilled nursing facility.
  

 

Example:	Gift of 86,460, made within 5 years of applying for Medicaid (if made on/after 2/8/06) or within 3 years (if made earlier).	(1) Made within the "look-back" period, so the gift affects eligibility.  (2) The gift results in a "penalty period" of 10 months.  (3) If the gifts was made before 2/8/06, the 10 months is over - no penalty. (4) If the gift was made on/after 2/8/06, the 10 months does not START until you are "othewise eligible" based on an "application."
Example:	Gift of $864,600 made within 5 years of applying for Medicaid (if made on/after 2/8/06) or within 3 years (if made earlier).	(1) Made within the "look-back" period, so the gift affects eligibility.  (2) The gift results in a "penalty period" of 100 months, or 8.33 years.  (3) The person making the gift is NOT ELIGIBLE for Medicaid until 8.33 years has passed.
Example:	Gift of $1,864,600 made 5 years + 1 day before applying for Medicaid (if made on/after 2/8/06) or 3 years + 1 day (if made earlier)	Outside the "look-back" period, so the gift does not affect eligibility.

For gifts prior to 2/8/06:  the "penalty period" starts the FIRST DAY of the month in which a transfer is made, so a gift of $8,646 on January 1, 2006 means that by February 1, 2006 the gift no longer had any effect on eligibility.  Exception:  in Connecticut, the penalty periods "tack."  This means that if a person makes a gift during a penalty period that is already running, the new gift creates an additional penalty period that does not start until the first penalty period is completed.  If the same person had also given $86,646 on December 1, 2005, the penalty on the $8,646 gift would not be over until November 1st, because it had to follow the earlier 10-month penalty. 


For gifts on/after 2/8/06:  if the same person had made the $8,646 gift on March 1, 2006, then even if (s)he applied for benefits as late as 3/1/2011, (s)he would still have a one-month penalty period and would be denied coverage for one month.


• Is a penalty imposed on every transfer?  NO.  Certain transfers are "exempt" or disregarded.  These include (but there are others):

• Transfer of home to a child who for 2 years lived with and provided care to applicant that kept him/her out of a nursing home. 
  
• Transfer of assets to a child or other person who for 2 years lived with and provided care to applicant that kept him/her out of a nursing home, to the tune of the average nursing home cost times the number of months of care (per Connecticut regulation).
• Transfers to or for the sole benefit of a spouse.
• Transfers to or for the sole benefit of, or in special trusts ("OBRA '93 Trusts") for disabled persons. T

• What is considered a transfer?  Some things that you may not think of as transfers by you, will be treated as transfers and, if made within a look-back period, will affect your eligibility for Medicaid.

• Any transfer made by your spouse before you are awarded Medicaid is treated the same as if it were made by you.  (Special rules apply if both of you require long-term care.)
• Transfers made on behalf of either of you by a conservator, under power of attorney, etc., are treated as if made by you.
• Withdrawals by a joint account-holder from a joint bank account.
• Putting the title to your house into joint names with someone else.
• Buying certain kinds of annuities -- the law has become complex in this area, so some purchases are OK but only an elder law attorney would be able to explain this thoroughly.
• Lending money if the promissory note does not meet certain criteria or if you forgive the loan in your will.
  
• Failure to make the election to take your "statutory share" of the estate of your spouse -- to "elect against the will" -- if (s)he dies before you, may be a transfer.
• Distribution from a living trust established by you or your spouse upon the death of either of you, if the other person requires long-term care.
  
• Disclaimer of an inheritance is a transfer.
• A gift in a will is not a transfer.
• A gift (of anything except your home) by your spouse, living at home, at any time after you are awarded Medicaid benefits, is not a transfer (at least in CT).

• Is it against the law to make a transfer?  No.  Some years back, the "Granny goes to jail" law suggested this could happen, but it was replaced by the "Granny's lawyer goes to jail" law that made it a crime for an individual (for example an attorney) to advise an individual, for a fee, to make a transfer of assets in order to qualify for Medicaid if a penalty period is imposed on the transfer.  However, during the Clinton administration, the Justice Department publicly stated that it regarded the law as unconstitutional and will not enforce it, and a New York court reached the same conclusion.  We haven't heard of any attempts to revive that law.
  
 
• What if the money runs out during a penalty period?  The law prohibits a nursing home from discharging a person unless there is an appropriate plan of care for that person.  In other words, it is not legal to "dump" a nursing home patient by the curb whether or not (s)he can pay for the room and whether or not Medicaid is paying.  See http://www.CTElderLaw.org for more on nursing home residents' rights.  Nor does Connecticut have any law requiring a person's children to foot the bill for a parent's care or to take the parent back into the child's home.  In addition, by law, states must have rules to prevent "undue hardship" to an applicant for Medicaid who is ineligible for benefits because of a transfer.  State regulations say that the Department of Social Services may require you to show that:

• The nursing home has threatened to evict you (the person who made the transfer).
• You and your spouse (if not in a nursing home) do not have assets available to pay the nursing home due to circumstances beyond your control.
• You sign an "assignment of rights" so that the State can take legal action to get funds you are entitled to.  This may include: (1) going to court to get a support order against your spouse; or (2) going to probate court to argue that someone using your power of attorney took your money.
  

• Can anything else bad happen to me or the person to whom I make the gift, because I made the gift?  YES.  Under a new law enacted June 8, 2005, making a gift within the "look-back" period creats a debt owed to the State of Connecticut by the transferor and the transferee, in the amount of Medical Assistance provided, not to exceed the amount of the gift.  Example:  Fit, active and healthy 75-year-old Grandma gives granddaughter $20,000 for tuition in July, 2005.  In December, 2007, Grandma has a stroke and enters a nursing home.  Her money runs out in June 2008 and she applies for Medicaid.  The penalty period expired years ago and her application is approved.  BUT, the State knows she has made a $20,000 gift during the prior three years, and in August 2008 sends the granddaughter (who has since graduated and is trying to pay off her other student loans) a notice that she owes the State $20,000.  Nice?  What else might happen?  If your relative signed as "responsible party" on the nursing home admissions contract, the facility might sue him or her for your nursing home bill if it isn't paid by Medicaid.  Believe it.  It does and will happen.