Transferring Assets and the Five Year Look-back

When an individual applies for Medicaid assistance in a nursing home, one of the first questions that is asked of them has to do with whether a transfer has been made of any asset for less than fair market values within five years (60 months) of the date of the application.  If such a transfer has been made, a “penalty period” will result depending on the value of the gift.  The larger the gift, the longer the penalty period. 

You calculate the penalty period by taking the value of the gifted assets and dividing that value by the average cost of a nursing home in your state.  In 2017, that divisor in Tennessee is $5,472.00 per month in the year 2017, for the State of Tennessee.  That number known as the “divestment penalty divisor” varies from state to state and typically updates annually.

The value of the gifts is figured including all gifts made during the look back period.  This should not be confused with the $14,000.00 per gift recipient per year permitted under Federal Tax Law.  The fact that there is no gift tax payable does not impact Medicaid qualifications.

For a married couple, the same penalty period applies whether the gift is made by the person who will be applying for Medicaid or the person’s spouse.  Having the applicant’s spouse make the gift instead of the applicant makes no difference.

There is no limit on the length of the penalty period.  That is to say that if the value of the gift results in a penalty period in excess of five years, the period of disqualification will continue past the five years to the end of the full value of the gift as calculated using the divestment penalty divisor.

The bottom line is that if your applicant has made a gift of any sort or a transfer of any assets for less than fair market value within five years of the date of your application, we would strongly recommend that you seek advice from an Elder Law attorney or someone familiar with Medicaid procedures.    – by Paul B. Plant, Esq.

Attorney Paul B. Plant at our firm is a member of the National Academy of Elder Law Attorneys and has been active in Elder Law Practice for more than 15 years.  If we can be of service to you, you may contact us at Harwell & Plant, 225 Mahr Avenue, Lawrenceburg, Tennessee, 931-762-7528, M- Thurs. 8:30AM – 5:00PM, Fri. 8:30 AM – 3:00PM, or pplant@harwellplant.com.

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