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

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. 

Sometimes, the return of an asset can be easily cured. For example, when a parent adds a child to the title of their property as a joint owner, Medicaid will consider that a divestment, resulting in a penalty. That divestment can be cured by the child deeding the property back to the parent, eliminating the penalty. Returning money which was gifted will likely mean the Medicaid applicant will have excess resources that will need to be spent down before the applicant will qualify for Medicaid. There are many possible ways to spend down the returned assets, including purchase of exempt or non-countable assets, such as a pre-paid funeral contract, purchase of a home or improvements to the home, and repayment of loans.

Our experienced attorneys and staff can help you navigate Medicaid’s complicated rules and application process. Reach out to us to schedule a consultation if you are planning for Medicaid or need to “cure” the prior gift of an asset.

If you have specific questions about your situation or would like to learn more, reach out to the team at WBH here.

Read more articles:

Should You Prepare a Medicaid Application Yourself?

Navigating the Medicaid application process can be complicated, especially if you are applying for long-term care benefits. Hiring an attorney to help you through the process can be extremely helpful. Whether you should prepare and file a Medicaid application by...

How Much Should a Trustee Be Compensated?

Serving as a trustee of a trust can be a huge responsibility, so trustees are entitled to compensation for their work. The amount of compensation depends on the type of trustee and the complexity of the trust.  Depending on the trust, a trustee’s duties can include...

Using Estate Planning to Prepare for Medicaid

Long-term care involves not only a loss of personal autonomy; it also comes at a tremendous financial price. Proper planning can help your family prepare for the financial toll and protect assets for future generations.  Long-term care can be very expensive,...

You Can Just Say No: Declining to Act as an Agent Under a Power of Attorney

Acting as an agent under a power of attorney is a big responsibility and it isn’t something everyone can take on. It is possible to resign or refuse the position. There are two main types of powers of attorney – financial and medical. As the agent under a power of...

The Difference Between Elder Law and Estate Planning

Elder law and estate planning serve two different--but equally vital--functions. The main difference is that elder law is focused on preserving your assets during your lifetime, while estate planning concentrates on what happens to your assets after you die.  Elder...

Claiming Social Security Benefits at Age 70

If you are about to turn 70, congratulations on reaching a big milestone.  And if you also have delayed claiming Social Security retirement benefits up till now, you are joining a select group -- only 6.5 percent of Social Security recipients put off collecting their...

In 2022, Social Security Beneficiaries Will See the Biggest Increase in 39 Years

The year was 1983: The U.S. invaded Granada. A gallon of gas cost 96 cents. Michael Jackson’s ‘Thriller’ video premiered. That year was also the last time that Social Security recipients saw a cost-of-living increase steeper than the one just announced for 2022. This...

Why You May Need a Trust in Addition to a Power of Attorney

While everyone should have a durable power of attorney that appoints someone to act for them if they become incapacitated, in some circumstances, it is not enough. In these cases, a revocable trust can help.  A durable power of attorney allows you to appoint someone...

When Can Someone Be Declared Legally Incompetent?

If a loved one is experiencing memory loss or suddenly making poor decisions, you may be in a situation where it becomes necessary to ask the probate court to appoint a guardian and/or a conservator for them. This is a complicated process, so we strongly encourage our...

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

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....