Most persons familiar with the basic rules of Medicaid eligibility (the means-tested program which pays for about 50% of all long-term care costs in the country) understand that gifts can trigger ineligibility consequences. The rule is contained with a “5 year look-back” provision. The look-back rule states that any gift made within 5 years of an application for Medicaid benefits results in a divestment penalty. The penalty is a period of ineligibility for Medicaid benefits when the individual would otherwise qualify.
The larger the gift, the lengthier the penalty. The calculation is based on the “divestment penalty divisor” and the precise amount is adjusted annually. Currently, it is $5,204.17 in South Dakota. This amount is what the State Medicaid Agency calculates to be the current average monthly cost of nursing home care within the state. So for every $5,204.17 in assets gifted within 5 years of a Medicaid application, the individual is deemed ineligible for one month. So, for example, a gift of $53,000 four years ago would result in a period of Medicaid ineligibility of about 10 months, measured from the date the applicant is sufficiently impoverished to otherwise qualify for Medicaid.
Certain transfers of an individual’s home, however, are permissible under the Medicaid rules and will not result in the assessment of divestment penalties. Although some states consider the home “exempt” for Medicaid eligibility purposes, that is rarely the case in South Dakota unless one (healthier) spouse continues to live there.
(1) Transfers to a blind, disabled, or minor child. The law provides a safe harbor for transfers of a home to a child who is blind, disabled, or under age 21. Obviously most individuals concerned with long-term care have children significantly older than 21 and it is rare that a child has a disability, but when these facts are present, a gift can be made without adverse Medicaid eligibility consequences.
(2) Transfers to a sibling. A second safe harbor is a transfer of a home to a sibling who has an equity interest in the home and has resided there for at least one year prior to the owner becoming institutionalized. Arguably, this safe harbor may be available even if the sibling’s ownership interest emanated from the owner only recently.
(3) Transfers to a caregiver child. Finally, the Medicaid rules authorize a transfer of a home to a child who has resided in the home for at least two years and has provided care which allowed their parent to remain at home. This safe harbor can best be relied upon when the child has kept detailed records of the care provided. And promptly changing voter and vehicle registration can help document when the child moved in.
Admittedly, the circumstances where these types of transfers might be considered are relatively few and far between. But when the right circumstances are present, it’s important to recognize the potential for gifts and transfers without Medicaid ineligibility consequences.