If mom sells home for $1, what happens to Medicaid?

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Q. If an investment house in New Jersey worth $300,000 is passed from mother to daughter for sale of $1 today, and then the mother applies for Medicaid two years later, what lookback penalty period will apply?
— Child

A. You’re right to figure there’s a penalty.

When someone applies for Medicaid, gifts will create periods of Medicaid ineligibility.

A Medicaid applicant must document all of his or her financial transactions during the “look-back period,” which is 60 months or five years, immediately prior to the date of application, said Shirley Whitenack, an estate planning attorney with Schenck, Price, Smith & King in Florham Park..

“If the financial records indicate there has been a transfer of assets – a check or withdrawal for which there is no explanation other than a gift – Medicaid will presume that the assets were transferred to promote eligibility for Medicaid benefits,” she said.

The value of the transfer will be divided by the statewide daily nursing home rate, currently $343.85, or $10,459 per month, to obtain the number of months of the ineligibility, also called the penalty period, Whitenack said.

She said the five-year year lookback period starts at the time of the transfer. However, the penalty period of ineligibility begins on the date the applicant is otherwise eligible for medical assistance under the State plan but for the application of the penalty period.

Whitenack offered this example.

If a Medicaid applicant transferred $300,000, the monthly penalty period of ineligibility for this transfer would be calculated by dividing $300,000 by $10,459. This equals 28.68 months of ineligibility. There is no rounding down.

Whitenack said the penalty period would begin at the time that the applicant medically needs an institutional level of care, has countable resources below $2,000 and the applicant has filed a Medicaid application to establish that he or she would have been otherwise eligible but for the asset transfer.

There is no limit on the length of the penalty period.

“Therefore, assuming the applicant otherwise would have qualified for Medicaid but for the asset transfer, the applicant would not be eligible for Medicaid for an additional 28.68 months,” she said. “On the other hand, if the application was made more than 60 months after the transfer date, then the transfer would be outside of the 60-month lookback period and, if no other transfers were made, then no penalty period would be imposed and the applicant would be eligible 61 months after the transfer date.”