Medicaid (known as Medi-Cal in California) can pay for the long-term institutional care (i.e. skilled nursing care) of individuals who meet certain income and asset requirements. However, if the applicant's assets and income exceed these limits, he or she may not qualify for Medi-Cal assistance until the limits are met. Given the high cost of long-term care, people sometimes try to give away their assets before applying for Medi-Cal in order to become eligible. Of course, state Medicaid agencies want to prevent this, so they require the applicant to disclose all financial transactions made in the last five years. (California is an exception and only requires disclosure of financial transactions made in the last 30 months.) We at Santa Barbara Estate Planning & Elder Law may be able to help you create a trust that would allow you to obtain Medi-Cal benefits.
The 30 month period in California (or 5 year period in other states) is known as the “look-back period.” In essence, state Medicaid agencies are “looking back” for assets transferred at less than fair market value. If the state Medicaid agency determines that such a transfer was made, it will impose a “penalty period.” And what is the penalty? It is a period of time during which the applicant will be deemed ineligible for Medicaid. The penalty period is calculated by dividing the amount the applicant has transferred by the state's average cost for private pay institutional care.
Any asset transfer can be scrutinized, regardless of size. Exceptions are not made for gifts to children or grandchildren, charitable donations, or other transfers that seem like “no big deal.” Similarly, informal payments to caregivers or loans to family members can raise red flags. In short, the applicant is considered guilty until proven innocent. The burden of proof lies with the applicant.
It is worth noting that transferring assets to certain recipients will not trigger a penalty period. These recipients include a spouse (or a transfer to someone else if it is for the benefit of the spouse); a trust for the sole benefit of a disabled or blind child; and a trust for the sole benefit of a disabled individual under age 65. The applicant's home can also be transferred to these recipients without penalty, as well as to all of the following individuals:
- A child under the age of 21
- A blind or disabled child
- A “caretaker child” who resided in the home for two years or more before the applicant required institutional care, and whose care permitted the applicant to delay his or her move to a long-term care facility
- A sibling who lived in the home during the year preceding the applicant's move to the institution and who has equity in the property
However, a home transfer is often unnecessary and may cause capital gains tax issues by transferring too early. With proper planning, which can be done by our team at Santa Barbara Estate Planning and Elder Law, it is possible to protect your assets against the transfer penalty. Even if you have already made asset transfers in the last five years (or 30 months and will be applying for Medicaid soon, we may still be able to protect a portion (if not all) of your life savings. Please give us a call at (805) 946-1550 to set up your consultation now.