Gifting and the Medicaid Penalty

       Once again, a recent New Jersey court case has highlighted the dangers of do it yourself Medicaid planning. In the case in question, C.W. v. New Jersey Division of Medical Assistance and Health Services, 90 year old C.W. moved into a nursing home in 2007. She then transferred her home and $540,000 in other assets to her 3 children. The total value of all assets transferred was just under $864,000.

       A year later, in March, 2008, C.W. applied for Medicaid benefits. Predictably, the application resulted in New Jersey Medicaid imposing a penalty of 10 years and 4 months. This meant that she would not be eligible and would have to pay for her own care at the facility’s private pay rate for nearly 10 and ½ years before being eligible for Medicaid.

       The family made a big mistake. Had they waited another 4 years to apply for Medicaid the transfers would have fallen outside of Medicaid’s 5 year lookback period. Instead they must pay an additional 5 and ½ years, should C.W. live that long, before the State will provide any help.

       They then tried to fix their problem. The children returned $235,000 to Mom who used it to pay for her nursing home care. The home was also returned and then sold. The proceeds of $250,000 were then deposited into an account in 2 of the children’s names. They entered into a written agreement to transfer an amount to C.W. each month to pay for her care.

       C.W. then reapplied for Medicaid in 2013. Referencing her 2008 application and Medicaid penalty period, the State denied her application. C.W. argued that the penalty should be reduced. No such luck. Next week I’ll share with you why.