In order to receive nursing home or assisted living Medicaid in Florida, the applicant must not have given away (i.e., made "uncompensated transfers") assets within five years of applying for Medicaid benefits. This is generally known as the Medicaid “look-back” period. The rule makes complete sense as Medicaid is a “needs-based” program that only assists those who fit into very strict income and asset levels. Medicaid income and asset qualification levels are listed on our Medicaid planning page.
In the event a Medicaid applicant transferred money away with the five year "look back" period, the State of Florida will generally assess a transfer penalty based upon the amount of money transferred. The reason for the transfer penalty is that money given away should have been used to care for the elder, so the Department of Children and Families (DCF) will assess a time period penalty that provides Medicaid ineligibility. The period of ineligibility for Medicaid is determined by dividing the amount of money given away by the average monthly private pay nursing home facility rate at the time of the Medicaid application. As of June 1, 2017, the transfer penalty divisor is $8,944/month. The following is an example of calculating the Medicaid transfer penalty:
Mom makes an uncompensated transfer of $100,000 on January 1, 2016 so that she leaves an inheritance to her children. Mom has a stroke 10 months later. On January 1, 2017, Mom is now in a nursing home and her Medicare rehabilitation days have run out. She then applies for Medicaid as she is out of money. Her countable assets now do not exceed $2,000 and her income is below the income cap. Because of the gift, a Medicaid transfer penalty is calculated as follows: $100,000/$8,944 = 11.18 months (i.e., the amount of the gift divided by the penalty divisor = the penalty period). Thus, because of the transfer, mom will not be eligible for Medicaid benefits until mid-November, 2017, some 11.18 months after she eligible and has applied for Medicaid.
In this example, if the children simply give the money back to mom, the transfer penalty will go away. Mom will now have $100,000 and will now be ineligible for Medicaid because she is now over the asset cap. Of course, with a good elder law attorney, the family may be able to legally protect her assets even though she is already in the nursing home. Here are some quick questions on protecting assets if the elder is already in the nursing home. The transfer penalty period only starts to run at the time of the applicant is eligible for, and has applied for, Medicaid.
An important aspect to gifting is that there is no de minimis exception for small gifts. Christmas and birthday gifts to family are considered transfers for Medicaid purposes and they should be disclosed on a Medicaid application. The first gifting rule is that uncompensated transfers are presumed to have been done for Medicaid/asset protection purposes. This is a rebuttable presumption with the Department of Children and Families. Importantly, even if small gifting has been done, hiring an elder law attorney will be important as part of the Medicaid process.
Further, the federal annual gift tax exclusion, set at $14,000 in 2017, does not apply to Medicaid planning. The annual gift tax exclusion is the amount of money you are allowed to transfer away without either paying gift taxes or filing a gift tax return. Only if you transfer funds over the lifetime exemption (some $5.49 million in 2017) will gift taxes be due. But the federal gift tax exclusion has nothing to do with Medicaid transfer penalties - you are not allowed to transfer away $14,000 per year to beneficiaries without a Medicaid transfer penalty.
True Story: A family came in to see me regarding their elderly father who just had a stroke and was in the nursing home. He was not going to be able to go home and would need to stay in the nursing home due to poor health. For the past 5 years, the family had gifted $14,000 per year to each child based upon bad advice from their CPA. It was not a pleasant situation to inform the children that they had to give the money back in order to negate the transfer penalty. Luckly for the family, they hired our office and with some creative legal advocacy, we helped negate the transfer penalty while getting their father on Medicaid and protecting assets.
Another important aspect is that not all gifting will be counted as an " uncompensated transfer" for Medicaid purposes, but any gift must be disclosed to the Department of Children and Families (DCF) at the time of the Medicaid application. If a transfer was made, you would definitely need to consult with an elder law attorney. There are also a number of exemptions and exceptions to the rule that you should consider as well. One such exemption is that uncompensated transfers, i.e., gifting, does not count between a married couple. This allows for some asset protection planning opportunities in certain situations for married couples, even if one spouse is already in the nursing home.
In summary, transferring money away (i.e., gifting) in order to protect the elder's funds only make sense in certain situations, such as if the elder wants to create an irrevocable asset protection trust. If you want to learn more about Medicaid and asset protection planning, please do not hesitate to contact our offices or attend one of our monthly Medicaid or Estate Planning seminars.
People who have read this may also want to read:
- My elder is on Medicaid - Can we sell the family home?
- My elder is in the nursing home - Can we protect assets now?
- How to apply for Long-Term Care Medicaid in Florida
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