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Do you have a client who has made an ineligible transfer, or divestment, during the last five years but is looking to qualify for Medicaid benefits? If so, it’s important for you to understand when the penalty period starts as well as what makes your client “otherwise eligible” for benefits.
What’s Considered a Divestment?
The most common divestments for Medicaid purposes are also the most obvious: giving away property to a loved one, selling a vehicle for less than fair market value, and gifting away other sizeable possessions. Other ineligible transfers include purchasing an annuity that does not meet the requirements of the Deficit Reduction Act (DRA), the establishment of certain life estate deeds, disclaiming an inheritance, and others.
Additionally, Medicaid applicants can make certain transfers that are exempt and, thus, do not create a penalty period. These include most transfers to a spouse, gifts to a blind or disabled child, transfers of income to a qualified income trust (or Miller Trust), and transfers of exempt assets (besides the home) that would not affect Medicaid eligibility.
Triggering the Penalty Period
The first step in prompting the Medicaid penalty period is for your client to submit their Medicaid application. If they have made divestments during the lookback period, they will receive a denial outlining the issue as well as stating when the penalty period begins. In many cases, this is the date that the applicant is in the nursing home and considered “otherwise eligible” for Medicaid, which is typically the date of application. Depending on the state, the penalty period may start the beginning of the month of application or the month following.
Read More: Lookback Period vs. Penalty Period
“Otherwise Eligible” Criteria for Medicaid
In order to be “otherwise eligible” for Medicaid and, thus, trigger the penalty period, the Medicaid applicant must meet all other criteria besides the divestment. For starters, they must be age 65 or older, blind, or disabled; require assistance with at least three activities of daily living (ADLs); and reside in a Medicaid-approved facility, which is typically a nursing home. Next, their income and assets must be below their state-specific limit. In most states, the income limit is based on the cost of care. The asset limit varies depending on marital status and other factors.
As long as your client meets all of the Medicaid qualifications apart from the divestment, they are considered “otherwise eligible” for benefits, and their penalty period begins.
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If you have questions about a specific case, feel free to reach out to our team at Krause Financial. We offer educational resources for Medicaid planning as well as specialized products to help during the spend-down process. Get in touch with us to learn more!