In Part 5, I discussed the issue of “excess” assets and the “spend-down” process in Medical Assistance. Apart from a couple’s exempt assets (house, one car, household furnishings, etc.), the remaining assets are “countable” assets for purposes of Medical Assistance. If a couple has countable assets of $350,000, the community spouse (i.e., spouse living at home) can retain one-half of the countable assets, up to a current (as of January 1, 2013) maximum of $115,920. The nursing home spouse can retain $2,400 or $8,000 in assets (depending upon the nursing home spouse’s income). If the couple can protect a combined amount of $123,920 ($115,920 + $8,000), the remaining “excess” assets total approximately $226,000. This means that the couple cannot become eligible for Medical Assistance unless and until (1) the excess is exhausted by paying for nursing care for 2+ years – and then applying for Medical Assistance after 2+ years, or (2) the excess is protected or spent in other categories of assets, as discussed in Part 5 (pre-paid funerals, paying off debt, repairs to a house, household furnishings, new car, spousal annuity, gifting, etc.). In this Part 6, gifts will be addressed.

Subject to the exceptions discussed below, the general rule is that gifts of assets made within five years of applying for Medical Assistance (generally referred to as the “lookback” period) will result in a person being ineligible for Medical Assistance benefits for a certain number of months – based upon the amount of the gift made. Specifically, the person will be ineligible for Medical Assistance benefits for as long as the gifted assets would have paid for the person’s nursing care. In Pennsylvania, the current average monthly cost of skilled nursing care is approximately $8,407. Thus, if a person made a gift of $100,000 two years before applying for Medical Assistance, the person would be ineligible for Medical Assistance benefits for approximately twelve months ($100,000 divided by $8,407 per month equals 11.89 months of ineligibility).

It should be noted that two drastic changes were made to the lookback rules under the federal Deficit Reduction Act of 2005 (which went into effect in Pennsylvania in March 2007). First, under the prior law, the lookback period was three years (except for certain transfers involving trusts, which were subject to a five year lookback). Second, under the prior law, the period of ineligibility began to run from the date of the gift. Thus, if an individual gave away $100,000 two years ago and applies for Medical Assistance today, the twelve month period of ineligibility would have already expired a year ago, and so the person would be eligible for Medical Assistance benefits today. However, under the current law, the period of ineligibility only begins to run when the person otherwise is eligible for Medical Assistance. Thus, under the above example, under current law, the twelve month period of ineligibility would only begin to run when the person applies for Medical Assistance (and not when the gift was made), and the person would be ineligible for assistance for twelve months after applying.

There are various transfers or gifts that are excepted from the above penalties. The most obvious exception is a gift made at least five years before applying for Medical Assistance. Thus, if a person does not expect to need nursing care within five years, or if a person retains sufficient assets to pay for five years of nursing care ($500,000, for example), a person may transfer assets to children (and such gifts also avoid Pennsylvania inheritance tax as long as they are made at least a year before death). As long as the gifts are made at least five years and one day before applying for Medical Assistance, those gifts are outside of the five-year lookback and result in no penalty.

The following are additional transfers or gifts that specifically are excepted from the above penalties:

1. Gifts of $500 or less per month. It should be noted that the annual gift tax exclusion of $14,000 per person does not apply in the Medical Assistance context. If an individual gives away more than $500 per month within five years of applying for Medical Assistance, the transfer(s) will result in a penalty for Medical Assistance.
2. Transfers to a spouse. Recall that countable assets of both spouses – regardless of how titled - are considered for Medical Assistance purposes. Therefore, it is not the case that all assets simply can be transferred into the community spouse’s name – and the nursing home spouse can then become eligible for Medical Assistance. Nonetheless, there are various other planning reasons to re-title assets in the community spouse’s name, and those transfers are not penalized as gifts.
3. Transfer of a house to a child who resided in the parent’s home for at least two years before the parent entered nursing care and who provided care to the parent which permitted the parent to reside at home rather than in an institution or facility (often referred to as the “caregiver” exception).
4. Transfer of a house or other assets to a child who is under twenty-one, or blind, or disabled – or to a trust for the child’s benefit, such as a special needs trust.
5. Transfer of assets to a special needs trust for any disabled individual under age sixty-five.
6. Transfer of assets that later were returned to the individual (i.e., gifted assets can always be returned to the individual to reverse any Medical Assistance penalty).
7. Transfers made for a purpose other than Medical Assistance eligibility. For example, routine Christmas or birthday gifts or gifts to one’s church generally would be made for a purpose other than becoming eligible for Medical Assistance. Also, large gifts made to children three or four years before an unexpected health crisis could be shown to have been made for a purpose other than Medical Assistance eligibility.
8. Transfers in which the Department of Public Welfare determines that imposing a penalty for Medical Assistance would cause undue hardship.

As can be seen above, because gifts made within five years of applying for Medical Assistance often make an individual ineligible for Medical Assistance benefits for a certain amount of time, and because there are numerous fact-specific exceptions in which gifts may not be penalized, it is important for families considering making gifts to consult with a knowledgeable elder law attorney to discuss the ramifications of any desired gifts.

In Part 7, I will discuss “spousal impoverishment” and what happens to a nursing home spouse’s and a community spouse’s income after the nursing home spouse is approved for Medical Assistance.