Important Facts About Medicaid: Exceptions to the Transfer Penalty

Transferring assets to certain recipients will not trigger a period of Medicaid ineligibility. These exempt recipients include:

(1) A spouse (or a transfer to anyone else as long as it is for the spouse’s benefit);
(2) A blind or disabled child;
(3) A trust for the benefit of a blind or disabled child;
(4) A trust for the sole benefit of a disabled individual under age 65 (even if the trust is for the benefit of the Medicaid applicant, under certain circumstances).

In addition, special exceptions apply to the transfer of a home.  The Medicaid applicant may freely transfer his or her home to the following individuals without incurring a transfer penalty:

(1) The applicant’s spouse;
(2) A child who is under age 21 or who is blind or disabled;
(3) Into a trust for the sole benefit of a disabled individual under age 65 (even if the trust is for the benefit of the Medicaid applicant, under certain circumstances);
(4) A sibling who has lived in the home during the year preceding the applicant’s institutionalization and who already holds an equity interest in the home; or
(5) A “caretaker child,” who is defined as a child of the applicant who lived in the house for at least two years prior to the applicant’s institutionalization and who during that period provided care that allowed the applicant to avoid a nursing home stay.

Congress has also 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.  This cure can be a very important tool for crafting assistance in Medicaid planning