Medicaid is a joint federal and state program that provides funding for long-term care in a nursing home, an assisted living facility, an adult medical day care program or at home. As a means-tested public benefit program, there are strict asset and income requirements. A single individual who wishes to qualify for Medicaid can have no more than $2,000 in countable assets in his or her name and if both members of a married couple seek Medicaid, they can have no more than $3,000 in assets in either or both of their names. There are somewhat higher limits, where one member of a married or a civil union couple will remain in the community independently and the other member will apply for Medicaid.

Generally speaking, an individual cannot give away his or her money and immediately qualify for Medicaid without being subject to a Medicaid penalty period. What does that mean? A penalty period is a period of time during which Medicaid will not pay for the care of the applicant, as a consequence of gifting during the five years immediately prior to the date of filing of the Medicaid application.

“Gifting” for Medicaid may not always be obvious.  Unverified withdrawals from a joint bank account by a child for cash payments of the parent’s expenses may be penalized as gifts. This happened in E.S. v. D.M.A.H.S. and Bergen County Board of Social Services, (Final Agency Decision, N.J. OAL Docket No. HMA 9477-2014, December 11, 2014).

What can you do if you are preparing to file a Medicaid application and the applicant has already given away more than $1,000 during the past five years?  Having the right documentation in hand is very important. Collect and keep financial statements, receipts, notes in checkbook registers and calendars to substantiate cash transactions.  If cash was paid for utility bills, medications, or for groceries, do you have a receipt or a prescription log from a pharmacy? Was a store loyalty card used? If there was gambling, are there statements available from the casino, to substantiate the amounts and dates of the losses?

Documenting that the uncompensated transfers were made exclusively for a purpose other than expediting Medicaid eligibility can also be an option. This can work when the client was living actively in the community at the time of the transfer. See Estate of M.M. v. DMAHS and Union County Division of Social Services, (Final Agency Decision, NJ OAL Docket No. HMA 13911-08, May 27, 2009) (reversing the imposition of any Medicaid transfer penalty for the transfer of $25,000 to a daughter by the Medicaid applicant, when she was living independently at home prior to traumatic onset of disability).

Questions? Let Jane know.

Jane Fearn-Zimmer is an Elder and Disability Law, Taxation, and Trusts and Estates attorney. She dedicates her practice to serving clients in the areas of elder and disability law, special needs planning, asset protection, tax and estate planning and estate administration. She also serves as Chair of the Elder & Disability Law section of the NJSBA.