Our Blog

702-625-9260

You Can ‘Cure’ a Medicaid Penalty Period by Returning a Gift

Posted by Laura E. Stubberud | Dec 08, 2021 | 0 Comments

Anyone who gifted assets within five years of 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.

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 (although some states do not permit partial returns and only give credit for the full return of transferred assets). 

Partially curing a transfer can be a “half a loaf” planning strategy for Medicaid applicants who want to preserve some assets.  In this case, a nursing home resident transfers all of his or her funds to the resident's children (or other family members) and applies for Medicaid, receiving a long ineligibility period. After the Medicaid application has been filed, the recipients return half the transferred funds, thus “curing” half of the ineligibility period and giving the nursing home resident the funds he or she needs to pay for care until the remaining penalty period expires.

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 will likely mean the Medicaid applicant will have excess resources that will need to be spent down before the applicant will qualify for Medicaid. States vary on how they handle returns. Some states may consider payments made directly to the nursing home on behalf of the Medicaid applicant to be a return of funds; others require that the payments go directly to the applicant. 

Your attorney can help you navigate Medicaid's complicated rules and application process. To find an attorney near you, click here.

About the Author

Laura E. Stubberud

Laura Stubberud has over two decades of experience in the practice of estate and family law in Nevada. After graduation from UCLA, she studied law at Southwestern University School of Law , graduating in 1992. With over 30 years of practice in Clark County, Nevada, Ms. Stubberud has substantial e...

Comments

There are no comments for this post. Be the first and Add your Comment below.

Leave a Comment

Call us today at 702.625.9260. You’ll receive the highest level of personalized service.

Menu