Anyone who gifted assets within five years of applying for Medicaid may be subject to a Medicaid penalty period, but that penalty can be reduced or eliminated if the recipient returns the gift.

In order to be eligible for Medicaid, you cannot have recently transferred assets. Congress does not want you to 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.

What is Medicaid’s penalty period?

This penalty is a period of time during which the person transferring the assets will be ineligible for Medicaid long term care assistance. 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 Indiana, this divisor is $6,873.  The result is a number of months of “no help” from Medicaid for long term care.

Reducing Medicaid’s Penalty Period

However, Congress has created a very important escape hatch from the transfer penalty: the Medicaid penalty period will be “cured” if the transferred asset is returned in its entirety, or it will be reduced if the transferred asset is partially returned.

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

Returning the funds will likely mean the Medicaid applicant will have excess resources that will need to be spent down or sheltered before the applicant will qualify for Medicaid. Indiana will not consider payments made directly to the nursing home or other vendor on behalf of the Medicaid applicant to be a return of funds.  So returned funds must be paid directly to the applicant.

The Stinson Law Firm can help you navigate Medicaid’s complicated rules and application process. For a Medicaid plan crafted to meet you individual needs contact us or call us at 317-622-8181.


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