Transfers of Assets that Medicaid Does Not Penalize

 In Long-Term Care Planning

While most transfers are penalized with a period of Medicaid ineligibility (explained here), certain others are exempt from this sanction. 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 (but this may not help you become eligible since the same asset limit on both spouses’ assets will apply);
  • Your child who is blind or permanently disabled; or
  • Into trust for the sole benefit of anyone under age 65 and permanently disabled.

In addition, you may transfer your home to those listed above, as well as to the following individuals:

  • Your child who is under age 21 (rather unusual for nursing home residents);
  • Your child who has lived in your home for at least two years prior to your moving to a nursing home and who provided you with care that allowed you to stay at home during that time (often referred to as the “caretaker” child);
  • A sibling who already has an equity interest in the house and who lived there for at least a year before you moved to a nursing home.

A Challenge to the Rules

In a recent Massachusetts case, the state Medicaid agency attempted to make the argument that the second group of permitted transfers that apply only to the home meant the the broader group of exceptions did not apply to the home, in other words that one list of exceptions was for the nursing home resident’s home and the other for all other assets, rather than the ones for the home being in addition to the broader exceptions. In the case, a woman had transferred her home into trust for the sole benefit of her disabled niece. The Massachusetts Medicaid agency made the argument that the transfer should be penalized because the niece was not the woman’s child. The Massachusetts court ruled in the woman’s favor that the transfer was not penalized because the broader exceptions applied no matter what was transferred into the trust for the niece. The court pointed out that it would be perverse to penalize a transfer of the house into the trust but not to transfer the proceeds of the sale of the home if it were sold first.

Case Study

Here’s how these rules can work in practice:

Emily and Ira go to visit an elder law attorney. They are quite concerned about their father, Frank, and their brother, Samuel. Samuel, now 54 years old, is mentally retarded and has lived with his parents his whole life. Since his mother’s death seven years ago, Samuel has been living only with his father. Frank is 85 years old and recently had a stroke. He is receiving care in a rehabilitation facility, but it is unlikely that he will be able to come home. He certainly will not be able to care for Samuel any longer.

Since his father’s stroke, Samuel has been staying alternately with Emily and Ira. His presence, along with tending to Frank, has greatly disrupted their family and work lives. This fill-in arrangement is not working for anyone. But Emily and Ira do care a great deal about Samuel, showing his picture to the attorney, and explaining how his living with his parents his whole life  had been at least as much a comfort for them as it was a burden.

Fortunately, they have located a group home that looks like a good setting for Samuel. Unfortunately, it costs $4,000 a month. Once Medicare coverage ends, Frank’s nursing home expense will be $12,000 a month. Frank’s estate, including the value of his house, which they plan to sell, is approximately $500,000. While Emily and Ira are not seeking an inheritance themselves, they see their parents’ estate being depleted over the next several years and their having to support Samuel themselves, or find publicly-funded care that may not be what they want for their brother.

They are much relieved when the elder law attorney advises them that Frank can create a trust to hold his estate for the sole benefit of Samuel, allowing Frank to immediately qualify for Medicaid coverage of his nursing home care. With the cost of care for both Frank and Samuel suddenly $3,000 rather than $13,000 a month, the trust fund will be able to pay for Samuel’s care indefinitely, even footing the bill for extras that will enhance his life.

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