02 Jan 14 Exceptions To Long-term Care Medicaid’s Transfer Penalty Rules
Since long-term care Medicaid (which helps pay for skilled nursing care and medications) is “means-tested” (assets of the applicant are reviewed to determine if there is eligibility for the government to pay), there is a 5-year “look-back” period as there is a presumption resources were purposely reduced so that the government would have to pay. The average cost of care for skilled nursing care in Texas exceeds $7,000 per month. If an uncompensated transfer is made within that look-back period, the applicant is penalized by having to private pay until the transfer penalty expires.
However, there are exceptions to every rule, and the following are exceptions to the Texas long-term care Medicaid transfer penalty rules:
- Transfers to a Tuition Savings Program – Transfers used to establish a tuition savings program (such as an irrevocable 529) from countable resources are not considered a transfer of resources if done before the beneficiary is 21 years of age and the transfer was made by the beneficiary’s parent, stepparent, grandparent, brother, sister, uncle or aunt.
- Transfers to a Uniform Transfers to Minors Account (UTMA Account) – Unlike the transfers to a tuition savings program, the beneficiary does not need to be related to the donor. The donor can name the custodian of the account. The custodian of the account may use the funds to purchase an education fund. The child must be under age 21 at the time the account is established and an education fund is purchased. Beneficiaries of an UTMA account can take control of the education from the custodian once the beneficiary obtains majority.
- Transfers Between Spouses – When applying for long-term care Medicaid, the assets of both spouses are looked at to determine eligibility – even if it is separate property. Thus, there is no transfer penalty if one spouse transfers assets to their spouse.
- Transfers to Disabled Child of Applicant – The government encourages taking care of the disabled child (regardless of age) of the Medicaid applicant. Proof of disability is usually achieved by a letter from the Social Security Administration.
Caveat: If the disabled child is on a Medicaid program such as Supplemental Security Income, then the disabled child could lose his or her benefits if the child receives additional assets.
- Transfers to a Sole Benefits Trust for a Disabled Child (of any age) of Applicant – If an irrevocable sole benefits trust that is actuarially sound is established for the benefit of a disabled child (no age limit), then the transfer is not penalized.
Caveat: This is usually used when the disabled child is receiving Social Security Disability (which is neither “means-tested” nor is the income from the trust a disqualifying event).
- Transfers to a Sole Benefits Trust for Anyone Under 65 – If an irrevocable sole benefits trust that is actuarially sound is established for the benefit of a disabled child (no age limit), then the transfer is not penalized.
- Attempt to Transfer for Fair Market Value – Even if an asset is transferred at less than fair market value, there is no transfer penalty if there was an intent to transfer at fair market value.
- Transfer for a Purpose Other Than to Qualify for Medicaid – If the applicant’s health was good when the transfer was made within the look-back period, then the transfer penalty may be averted.
- Imposition of a Penalty Would Cause an Undue Hardship – If the applicant’s health is endangered.
- Change of Joint Bank Accounts to Separate Accounts to Reflect Correct Ownership of Funds
- Purchase of Pre-Need Funeral for Applicant and Spouse – The pre-need funeral (if based on an insurance policy) must be irrevocable assigned to the funeral home, but this will not result in a transfer penalty.
- Transfer of Home by Lady Bird Deed or Transfer on Death Deed – Since the applicant retains full control of the homestead until death, these types of deeds (a Ladybird deed is an enhanced life estate deed) are not penalized. The deeds also avoid a successful claim from the Medicaid Estate Recovery Program.
- Transfer of Home to a Sibling who has an Equity Interest – If a Medicaid applicant has a brother or sister who lived in and had an equity interest in the applicant’s home, a transfer of the applicant’s interest to his or her sibling is not a penalized event.
- Transfer of Home to Child who Prevented Applicant’s Institutionalization – If a son or daughter lived in the applicant’s home for 2 years before the applicant’s institutionalization and prevented the institutionalization, then a transfer of the home to the child is not a penalized event.
Caveat: Loss of step-up in basis and higher property taxes should be considered before you transfer a homestead to a child.
The preceding paragraphs are not the only exceptions to transfer penalty rules for long-term care Medicaid, but it illustrates that there are exceptions to every rule.
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