When it comes to securing Medicaid to pay for long-term care in a nursing home for seniors, understanding the ins and outs of the Medicaid divestment rule or penalty divisor period is crucial. The penalty period is a period in which someone is ineligible for Medicaid benefits for as a result of violating the Medicaid look-back rule.
Avoiding penalties is essential for ensuring that seniors receive the necessary support from health professionals without jeopardizing their financial well-being. Our experienced elder law lawyers can work with you to avoid this costly mistake and explore strategies for curing penalties already imposed. We offer personalized guidance based on a senior’s unique circumstances and need when dealing with Medicaid penalties.
Understanding Florida Medicaid Gifting Rules
When planning for long-term care in a nursing home, it is essential to understand the Florida Medicaid gifting rules. These policies are in place to make sure that individuals do not purposefully try to qualify for government-funded healthcare by transferring assets they could use to pay for care. This is because the program was designed to help those who have no other way to pay for care.
The Medicaid Five-Year Look-Back Period
In Florida, the Medicaid program has a 60-month (five-year) look-back period that assesses an applicant’s eligibility for long-term care benefits. An application is reviewed, and Medicaid looks to see if any gifts or transfers of assets without receiving fair value in return have been made within the five years of applying for Medicaid. This includes any gifts or transfers of assets made by the Medicaid applicant, intentionally or not. These gifts or transfers of assets are subject to a penalty period where the applicant is ineligible for benefits.
- Purpose: The primary purpose of this rule is to prevent a senior or nursing home resident from giving away their wealth solely to become eligible for Medicaid assistance while still having access to resources through family members or friends.
- Penalty Period: If you have gifted assets during this time frame, you may face a penalty period during which you will be ineligible for financial assistance from Medicaid. The penalty is a period of time calculated by dividing the amount transferred by the average private pay cost of a nursing home in your state.
- Gifts Subject To Penalty: Not all transfers result in a Medicaid penalty period. Only those deemed “uncompensated transfers” will be imposed a penalty. Transfers made where you received fair market value in return are not penalized, such as selling your car and receiving fair payment in return. Examples of a gift or uncompensated transfer include cash gifts, real estate transactions below fair market value, and interest-free loans provided without proper documentation.
Treatment Of Gifts During Look-Back Period
Most gifts made during the look-back period will result in penalties and trigger a period of ineligibility, even those made unintentionally. The penalty period is applied strictly to Medicaid applicants. Fortunately, several exceptions do exist!
Seeking the assistance of an experienced elder law attorney can help you ensure that you don’t make this common mistake on your Medicaid application and help you take advantage of Medcaid’s gifting exceptions. Or, if you are already facing a penalty, we may be able to utilize Medicaids rules to fix or cure this penalty and regain your Medicaid eligibility.
One of the most utilized exceptions to the gifting rule is transfers between spouses. Another is transfers made for purposes other than qualifying for Medicaid benefits. Additionally, if you can prove that a gift was returned before applying for assistance, it may be possible to avoid or cure the penalty that would be imposed.
Avoid the Medicaid Divestment Penalty Period in Florida
When possible, the best option is to avoid incurring a penalty period at all. There are a handful of tools that a Medicaid applicant has at their disposal. They must be carefully followed, or a penalty will still be imposed. Seeking the help of a skilled Medicaid lawyer is highly advised.
- Timely Asset Transfers: The most obvious option is to make sure any asset transfers are made outside of the five-year look-back period. This means making gifts or transfers to things like an Irrevocable Medicaid Asset Protection Trust at least five years before applying for Medicaid. Doing so will prevent these transfers from being considered as part of your eligibility determination.
- Utilizing Exempt Assets: Another strategy involves converting countable assets into exempt ones. Examples include purchasing a primary residence, investing in an irrevocable funeral trust, or buying a car used primarily by the applicant or their spouse. It’s essential to consult with an experienced elder law attorney when considering this approach to ensure compliance with all applicable rules and regulations.
- Creating Special Needs Trusts (SNT): If you have a disabled family member who requires ongoing support and care, establishing a Special Needs Trust (SNT) can be an effective way to transfer assets without triggering divestment penalties. An SNT allows funds to be set aside specifically for the beneficiary’s needs without jeopardizing their eligibility for government benefits, including Medicaid.
- Implementing a Caregiver Agreement: Another option to avoid a penalty period is by entering into a caregiver agreement with a family member or friend who provides care services. This legally binding contract outlines the caregiver’s responsibilities and compensation, ensuring that payments made for caregiving services are not considered gifts under Florida Medicaid policy.
Despite our best efforts, either intentionally or not, individuals often gift assets during the five-year look-back period. Fortunately, Medicaid policy does provide a final option to undo the penalty period. This is done by returning the gifted assets back to the applicant. Seniors can prevent expensive out-of-pocket costs for long-term care by restoring their eligibility for Florida Medicaid through the process of returning assets given away in the last five years. This is called “curing.”
Returning Assets to Cure Medicaid Penalty Period
Under Medicaid policy, if a senior has been found ineligible due to a gift of assets within five years of the application, they can “cure” that gift penalty under Medicaid rules by having the recipient return the entire gift.
In Florida, if a gift or transferred asset is returned in full before an individual applies for Medicaid benefits or before any penalty period begins, there will be no penalty assessed. If a transferred asset is partially returned, it’s possible that the penalty can be reduced using a penalty divisor calculation.
Common Reasons Gifts are Made
Medicaid doesn’t typically consider the reasons why the transfer was made. A gift made under the IRS gifting exemption is still considered a gift for Medicaid.
Another common gifting mistake is paying a family member for services. The policy assumes that care from family or friends should be provided at no cost. Even gifts made while not contemplating care are strictly construed. The policy holds that all older adults should assume they will need nursing home care in the near future and rarely grants this exception.
If assets have been transferred that could have otherwise been used to pay for care, a penalty will be imposed. It is crucial to consult with an elder law attorney when attempting to cure a penalty period, as the rules in doing so are complex and strictly interpreted.
Potential Challenges in Returning a Gift
- Tax implications: Depending on the type and value of gifted assets being returned, both parties involved may face tax consequences such as capital gains taxes or income taxes upon receiving those funds back.
- Familial disputes: If family members were recipients of gifted assets and now must return them, disagreements could arise over how much should be given back or even whether they should comply at all.
- Liquidation issues: If the gifted property needs to be sold in order to return the funds, there may be difficulties in finding a buyer or receiving fair market value for the property.
- The gift is unavailable: The person who returns the money needs to be the same person who received the gift or isn’t a return of the original gift. However, many people will have spent the gifted asset and don’t have the funds to return it.
Given these potential challenges, it is crucial to work with an experienced elder law attorney who can help navigate this complex process and ensure that all necessary steps are taken to regain Medicaid eligibility.
How to Eliminate or Reduce the Transfer Penalty
Medicaids policy states that if all transfers are returned to the individual, the penalty period is eliminated. Eligibility will be re-evaluated as though the individual had never made the gift. This also means that returned assets will be counted as available, and likely the applicant will be over the asset limit for eligibility until the assets are either spent or disposed of in another way that does not result in a penalty.
If the gift is returned to the applicant only in part, the penalty divisor will be adjusted, and the period of Medicaid ineligibility will be recalculated accordingly. Similarly, the returned assets will likely exceed the asset limit for Medicaid eligibility. The applicant will be ineligible until the remaining penalty period expires and they have spent or reduced their excess assets.
Medicaid Planning with an Elder Law Attorney
When dealing with Florida Medicaid gifting rules and penalties, consulting with an experienced elder law attorney can save you time and protect you and your hard-earned assets. Navigating the complex regulations surrounding nursing home care is challenging for seniors and their families.
The Friedman Elder Law Department’s experienced attorney team is dedicated to helping clients understand Florida’s Medicaid gifting rules and avoid or cure Medicaid penalties. We can provide guidance on avoiding periods of ineligibility or walk you through the process of returning assets to cure already assessed penalties.
Let us work together to develop a comprehensive plan. Our expertise in Elder Law can help you navigate through this complex process with tailored solutions for your unique situation. Contact us at (954) 866-1055 or click here to get started today.