Medicaid has a way of distinguishing the naughty from the nice in asset transfers. The Medicaid financial rules set limits on the amount of assets a person can retain to qualify for long-term care benefits. The applicant must prove how they spent down excess assets to reach the limit on assets. There are only two ways to spend money: purchase goods and services or give assets away. The focus is on how the applicant “transfers” assets. A transfer of assets is either protected or penalized.
A transfer of assets to purchase goods and services at fair market value is protected. A transfer of assets for less than fair market value is treated as a gift. The amount of the gift is the difference between the amount paid and the fair market value of what was received.
A gift is subject to a penalty period. The penalty is expressed as a waiting period during which the applicant must continue to self-pay for care. When the penalty period ends, Medicaid will start to pay for care.
Some gifts are not penalized if the transfer is to a protected person. Protected persons include a spouse, a child caregiver who has resided in the house for two years, a sibling who has an ownership interest in the house and has resided there for one or more years, and a minor child who is blind or disabled.