By Stanley M. Vasiliadis, Esq., CELA
Anyone who gifted assets within five years prior to applying for Medicaid may be subject to a penalty period, but that penalty can be reduced or eliminated if the assets are returned.
In order to be eligible for Medicaid, you cannot have recently transferred assets. Congress does not want you to move into a nursing home on Monday, give all your money to your children (or whomever) on Tuesday, and qualify for Medicaid on Wednesday. So it has imposed a penalty on people who transfer assets without receiving fair value in return.
This penalty is a period of time during which the person transferring the assets will be ineligible for Medicaid. The penalty period is determined by dividing the amount transferred by what Medicaid determines to be the average private pay cost of a nursing home in your state. In Pennsylvania, the official average daily cost for nursing home care in 2022 is $482.50, which amounts to $14,676.04 per month.
However, Congress has created a very important escape hatch from the transfer penalty: the penalty will be “cured” if the transferred asset is returned in its entirety, or it will be reduced if the transferred asset is partially returned. Provided, however that to the extent a penalty has been imposed and has already run, it cannot be cured. So timing is critical.
At Vasiliadis Pappas, we use cures and partial cures to fix problems created by family members who used their authority as agents under power of attorney to gift assets of their principal. Gifting works, but only if done in the right way.
The person who returns the money needs to be the same person who received the gift; otherwise, it is not really a return of the original gift. But many people will have spent the gifted assets and no longer have any money to return. If the person who received the transfer no longer has the funds to cure, other family members could give or loan that person the funds to do so.
Returning the funds cures the penalty. But this results in “excess resources” that the Medicaid applicant must eliminate via proper gifting techniques. Someone returning a gift can arguably do so by paying the money directly to the nursing home. But the prudent thing to do is to return the funds directly to the applicant and then implement an asset protection plan.
Your attorney can help you navigate Medicaid’s complicated rules and application process.
Contact Vasiliadis Pappas Associates for assistance if you or a loved one encounters this situation.