Many seniors generously give gifts to loved ones or donate to charities without realizing how these transfers might impact their Medicaid eligibility. While giving away assets may seem like a way to reduce countable resources, Medicaid has strict rules that can result in penalties and delayed benefits. Understanding these rules is essential when guiding clients through the spend-down process.

Medicaid and Asset Transfers: What You Need to Know

Medicaid applicants must reduce their countable assets below a certain threshold to qualify for benefits. However, Medicaid enforces a five-year lookback period to prevent applicants from simply giving away their assets to meet this requirement. If an applicant has made an ineligible asset transfer during this timeframe, they may face a penalty period before they can receive benefits.

Travis Bitters  The Krause Agency Medicaid Annuity Specialist

Understanding the Lookback Period and Penalty Period

The Lookback Period: Medicaid reviews the applicant’s financial history for the past five years. Any asset transfers made for less than fair market value during this period may result in a penalty.

The Penalty Period: If Medicaid finds ineligible transfers, the applicant must wait to receive benefits. The length of this penalty is determined by dividing the total value of the transferred assets by the state’s Divestment Penalty Divisor.

What Counts as a Divestment?

A divestment, also known as a gift or transfer for less than fair market value, can include:

• Donating money to charity

• Gifting money or property to family members

• Transferring assets into an irrevocable trust

• Selling assets below fair market value

What About Transfers Between Spouses?

Spouses can transfer assets freely until one spouse becomes eligible for Medicaid. After that point, transfers to the community spouse (the spouse not applying for Medicaid) must not exceed the Community Spouse Resource Allowance (CSRA). Transfers that put the community spouse’s assets beyond this limit are considered divestments and may trigger a penalty.

Spending Down Assets the Right Way

While clients cannot give away assets to qualify for Medicaid, they don’t have to drain their savings on nursing home costs either. A Medicaid Compliant Annuity (MCA) offers a strategic solution—helping clients accelerate Medicaid eligibility while preserving their assets.

Want to learn more about helping clients navigate Medicaid planning? Book a call with our team at Krause Agency today!