Will New Jersey Medicaid Reduce a Penalty if Assets are Returned?

So, a penalty has been imposed by Medicaid.  Now what do you do?  Can you return the assets?  How about returning some but not all of the assets?  On May 26, 2010, New Jersey issued a Medicaid Communication providing that in order to reduce the penalty period, all transfers for less than fair value made during the five year look back period must be returned.  Partial returns no longer have any effect on reducing the penalty period.

While this appears to be an unfair rule, a careful reading exposes a very simple work around.  So long as the penalty period has not yet been assessed (i.e., the individual has not yet applied for Medicaid and has not received a “but for” letter), any transfers for less than fair value returned should be as if they never occurred at all.  That’s when they are potential penalties.  There is no penalty until the “but for” letter is issued.

Early in the process of assembling the application, as elder law attorneys, we want to determine what transfers our clients made so we can decide whether the best course of action is to apply and get a “but for” letter or to transfer some or all of the assets back to the applicant before filing the application.  That will depend on the facts and circumstances of each case.