Gifting and the Medicaid Penalty (Part 2)

     Last week I was telling you about a recent New Jersey court case which resulted in a 10 and ½ year Medicaid penalty. The family tried to navigate New Jersey’s Medicaid rules on their own and then tried to fix their mistake. It didn’t work. Let’s examine why.

     To summarize the facts, C.W. transferred her home and $540,000 in other assets to her children. She applied for Medicaid and was assessed a 10 and ½ month penalty because of the transfers. The children tried to fix the problem and then reapplied for benefits.

     Part of the problem was that after the penalty was calculated by Medicaid, the children returned some but not all of the money. It has been clearly established by New Jersey courts that partial returns will not reduce the penalty. It’s all or nothing, meaning unless you return all the transferred money the State won’t reduce the penalty.

     C.W.’s family should have consulted with an elder law attorney before applying for Medicaid.   With a better understanding of the rules, they could have made a partial return before any Medicaid penalty and used that money to pay for care until they were ready for eligibility.

     A second mistake they made was taking the proceeds from the sale of Mom’s home and then retransferring it back to an account in 2 of the children’s names. Although there was some written agreement to transfer the money back to Mom each month to pay for care, they unnecessarily complicated an already messy situation. Moving money back and forth several times between Mom and children didn’t help them. Again, they didn’t understand the rules.

    The transfer back to the children undid their attempt to fix the original Medicaid penalty. It is not clear why they chose to move the money back to their names if they were using it for Mom anyway. It may be that they thought, when they filed another Medicaid application, that they were fixing their mistakes by doing it this way.   Instead, they just made it worse.

    In the end, the family is stuck with a longer penalty then they should have had.  That’s why navigating Medicaid on your own is such a bad idea.