Medicaid Penalty Period Explained | Your Letters, Your Questions…
(Note: Not Legal Advice!)
“What can I do to protect a property transferred via quit claim deed 2 years prior to entering assisted living from Medicaid?”
Two years ago, my father transferred a family property… to me via quitclaim deed. Currently no one resides there. He may be entering assisted living and it’s my understanding Medicaid can seize property within five years of transfer for estate recovery… Are there any steps that I can take prior to him entering assisted living to protect the house? He does currently own a… primary residence.
The Answer Is: It is complicated, but there are things you can do.
Divestment Definition & Dilemma
Dad deeding the “family property” to you was “divestment.” Divestment is the “transfer of a resource for less than fair market value.” Dad must report all divestments that were made within 60 months (that’s 5 years) before applying for Medicaid. If Dad gave stuff away in the 60 months before applying for Medicaid, Medicaid will impose a Penalty Period.
Penalty Period Pain
Here is how the Penalty Period works. Medicaid says that for every $9000 Dad gave away, Medicaid imposes a one-month penalty. In other words, Medicaid will not pay for Dad’s long-term care for a month for each $9000 Dad gave away. The Penalty Period, however, does not begin until Dad is broke and in long-term care.
What It All Means
If the “family property” that Dad gave you is worth $90,000, the Penalty Period will be 10 months long. The 10 months begins when Dad has no more money ($2000) AND Dad is in long-term care. Medicaid will not pay Dad’s bill. Dad has the Homestead, but no money. The bill does not get paid.
Nursing Homes do not like to not getting paid. Nursing Homes sue people who do not pay them. Nursing Home sues Dad. Dad sells Homestead. Now Dad has cash to pay the nursing home bill.
Dad spends all his cash. Now Dad has no money. But Dad still has a PENALTY PERIOD! Medicaid still will not pay. Nursing Home still does not like to not get paid. Nursing Home sues Dad again. Now Dad has nothing.
Nursing Home sues you. If Dad had not given the “family property” to you, Dad could have sold it to pay his bill. Giving the property to you is called a “fraudulent transfer.” Ugly name, ugly result. You sell the property and turn the cash over to the nursing home.
When this cash runs out… Dad still has a Penalty Period! But too bad, so sad for the nursing home now, because Dad has been drained dry.
Let’s rewind the clock…
Solution #1: PACE TO THE RESCUE
Dad is still at home. Situation is not yet desperate. Is it possible for Dad to remain at home, if he received a certain amount of care?
Program of All-inclusive Care for the Elderly (“PACE”) might be the solution. PACE is Medicaid. PACE is administered by private organizations that manage the government/Medicaid dollars to keep your loved one at home. PACE does not provide 24/7/365 round-the-clock nursing care. But PACE enables thousands of folks to stay at home. Folks who would otherwise be in skilled nursing or assisted living.
REALLY GOOD NEWS ABOUT PACE: Right now, until further notice, PACE does not care about divestments. There is no Penalty Period. Dad keeps the Homestead. You keep the “family property.” Nursing Home gets paid by Medicaid. We all join hands… “I’d like to teach the world to sing, in perfect harmony…”
Solution #2: PAY THROUGH THE PENALTY PERIOD
This gets a bit complicated. Medicaid pays when Dad has no money. Medicaid says that income is not money. Medicaid says that certain payments received from certain annuities is income.
Dad still has a 10-month Penalty Period. But what if Dad has some cash? Like $90,000 of cash? Now he can pay for 10 months. But if he has cash, then he is not broke. If he is not broke, the Penalty Period does not begin.
We put the cash into the certain kind of annuity. That pays a certain amount in a certain way. When we do this, Dad is broke. Dad has no money. But Dad does have enough INCOME to pay the Nursing Home through the Penalty Period. At the end of the 10- month Penalty Period, the annuity is empty. And there is no more Penalty Period.
You keep the “family property”. Dad keeps his Homestead. Nursing Home gets paid. We all join hands… “I’d like to teach the world to sing, in perfect harmony…”
SOLUTION #3: LIST THE FAMILY PROPERTY FOR SALE
I just spent an hour and a half trying to write up this strategy in a way that does not lead to total confusion. I cannot do it. Suffice to say that there is a third strategy. The third way does work. I am happy to explain it in person. But I cannot make it fit on this page.
Call me! I will explain it. We all join hands… “I’d like to teach the world to sing, in perfect harmony…”
Simple Solutions To Complex Conundrums
Everybody wants a simple solution. So, do I. But that’s not always possible. The bad news is that we cannot make this stuff easy. The good news is that we can make it easy for you.
Applying for benefits does not mean Nursing Home Poverty or silly Spend Down. Learn how to preserve your loved one’s lifesavings, business, cottage, life insurance. Thousands of middle-class families have learned and use these techniques. Why not yours?