Does New Jersey’s Medicaid Penalty Apply Only to Gifts?

When I define the Medicaid penalty for our elder law clients, they usually think only in terms of gifts.  However, the penalty is triggered by much more than simply gifts.  It is a transfer for less than fair value that causes a penalty.  Fair value is not measured subjectively, but rather objectively based on fair market value.   Additionally, Medicaid requires documentation to prove the fair value.  We sometimes tell clients, partly in jest, that the criminal system works differently than the Medicaid system.  In the criminal system you are innocent until proven guilty.  The Medicaid system works the other way.  You are “guilty” until proven “innocent”.  By this, I mean to say that when there is a transfer of assets out of the applicant’s name, the applicant has the burden of establishing, by documentary evidence, that the transfer should not be subject to a penalty.  If he/she can’t prove it – and, again, it is not sufficient to tell Medicaid what the money was spent for – then it is treated as a transfer for less than fair value.