Suppose your father just died, and you want to help your
mother prepare for the steep expenses of long-term nursing home
care. Unfortunately, the value of her possessions prevents her
from receiving Medicaid assistance - but, without Medicaid, she
will be unable to afford the cost of nursing care. However, if
she gives away her savings bonds, house and car (preferably to
you!), she'll qualify for Medicaid.
WATCH OUT!: under new legislation
effective January 1, 1997, if you advise and assist her in
transferring these assets to yourself or anyone else, you and
your mother might be committing a federal crime punishable by a
fine of up to $10,000, or imprisonment for up to one year, or
Congress believes it is criminal for anyone to shift wealth
for Medicaid qualification purposes. The new Health Insurance Act
(Section 217 of the Health Insurance Portability and
Accountability Act of 1996, P.L. 104-191) forbids these
transfers. Unfortunately, it is brimming with unanswered
questions and ambiguities regarding its actual application.
Under the current rules, a transfer of assets for less than
fair market value within 36-months of applying for Medicaid, or
60 months for transfers to trust (the "look-back"
period), will result in an "ineligibility
period" based on the value of assets transferred and
the average monthly private pay rate for nursing facilities in
the state. In general, the ineligibility period is determined by
a fraction, the numerator of which is the amount given away and
the denominator of which is the average monthly cost of nursing
care in your state.
For example, if your mother gives you her savings bonds, house and car, worth a total of $38,000, within 36 months of applying for Medicaid, and the average monthly cost of nursing care in your state is $3,800 per month, a 10-month ineligibility period applies ($38,000/$3,800 = 10 months).
The transfer of your mother's house to you may be exempt from
the transfer of asset rules if you qualify as a caretaker child.
In addition, the following transfers will not result in an
ineligibility period, or criminal liability under the new Act
(unless your state's Medicaid agency decides not to provide an
How this new legislation will integrate with the existing
Medicaid eligibility rules is unknown. Section 217 of the Health
Act adds the following paragraph to 42 U.S.C. Section
1320(a)-7b(a) provides for criminality if:
(6) [Anyone who] knowingly and willfully disposes of assets
(including by any transfer in trust) in order for an individual
to become eligible for medical assistance under a State plan
under title XIX, if disposing of the assets results in the
imposition of a period of ineligibility for such assistance under
section [42 U.S.C. Section 1396p(c)].
Unfortunately, the language does not clarify when the transfer
of assets results in a crime. Possible interpretations include:
(1) Your mother's transfer of assets is a crime if she applies for Medicaid within the 36 or 50 month look-back period (described above); or
(2) The law applies if your mother applies for Medicaid during the ineligibility period (determined by the fraction described above), even if your mother did not know about the new law and had not been advised to wait until the ineligibility period expired before applying for Medicaid.
Depending on how strange new law is applied, your mother could
be eligible for Medicaid after the ineligibility period expires,
she still be thrown in prison for an illegal asset transfer under
the new act!
The statute will apply if your mother knowingly
and willfully disposes of her assets to become eligible
for Medicaid. Whether the disposition of your mother's assets
will be considered a crime only if the primary
purpose is to become eligible for Medicaid is vague. A
good faith belief that the transfer was proper might not
constitute a valid defense - the courts will have to rule on this
A violation of the Act will be classified as either a
misdemeanor or felony offense, but no one knows which. The Act
was placed in a Code section that imposes criminal penalties for
false statements, misrepresentation, concealment or failure to
disclose information or the conversion of Medicaid payments.
Arguably, the penalty does not apply to the actual disposition of
assets under the new Act, only if a person makes a false
statement in connection with the Medicaid process.
It is a sorry and disgusting state of affairs when such a
critical law is vague and inconsistent. What should your mother
do? If she chooses to attempt disposing of assets, she should
obtain professional advice to determine whether the asset
transfers will qualify as exempt transfers, and determine other
ways of reducing assets.
Long-term care insurance should be carefully considered to avoid the risk of criminal liability.
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**NOTE: The information contained at this site is for educational purposes only and is not intended for any particular person or circumstance. A competent tax professional should always be consulted before utilizing any of the information contained at this site.**