Gifts and Other Transfers Prior to February 8, 2006
Many families engage in "asset protection" planning by making gifts from the assets of potential medical patients so that Medicaid will pay for further nursing home care.
Until recent years, many Colorado lawyers have also specialized in helping families "keep their assets" but still qualify for Medicaid payments.
However, the laws regarding these gifts and other transfers have been strengthened so that it is now (especially after February 8, 2006) much more difficult to transfer assets and still qualify for Medicaid.
After a gift is made, a period of ineligibility is imposed if the transfer occurred during the applicable "look-back" period.
For transfers made prior to February 8, 2006, the"look-back" period is the 36 month (60 months for a trust) period prior to the date of the Medicaid application. The penalty period of ineligibility is calculated by dividing the amount of the transfer by the average monthly cost of a nursing home in Colorado. The penalty period begins on first day of the month of the transfer.
For example, if $60,000 in cash is gifted on February 5, 2006, which date is also within the 36 month "look-back" period (60 months if a trust), then the penalty period is $60,000 divided by $6,000 per month, which is a penalty period of ineligibility of 10 months. This penalty period begins on February 1, 2006. This is a simplified example, which assumes that the average cost of nursing home care is $6,000/month. This means that the Medicaid applicant is ineligible for a period of 10 months, beginning on the first day of the month of the transfer. This usually means that the gift recipient (or someone else) has to somehow come up with the money for nursing care during the period of ineligibility or care for the applicant outside of a nursing home. Or in this example wait until the penalty period expires September 30, 2006.
Now, in 2009, these early pre-February 8, 2006 transfers are no longer a problem, unless the transfers are large such as $250,000 or more. (And in 2009, after February 8, the 36 month look-back period has expired. However if the transfers were made to a trust, the 5 year look-back period still applies in 2009.)
Gifts and Other Transfers After February 8, 2006, a Longer & More Difficult Penalty Period
For transfers after February 8, 2006, the penalty period begins on the date of Medicaid eligibility (needs a nursing home and meets the income and asset eligibility limits)) or date of transfer, whichever is later. (This is a much different penalty period, compared to the gifts made prior to February 2006.)
And the "look-back" period is 60 months for all transfers, not 36 months. This is a much more difficult transfer problem, because of the additional time of the look-back period, but also because the penalty period will not begin until the Medicaid applicant applies for Medicaid and is eligible after the income and resources limits are met.
In other words, unlike the transfers made prior to February 8, 2006, the penalty period does not begin before the time of Medicaid eligibility.
Thus, the penalty period has to be dealt with after the applicant is broke and needs nursing care. That is a big problem.
For example, a Colorado Medicaid applicant gifts $60,000 on February 10, 2006. About 4 years later, on January 2, 2010, the applicant is disabled such that he needs nursing home care. At that time, he has $48,000 in nonexempt money, at a time when the average cost of nursing home care is $6,000. The 2006 gift will result in a penalty period of $60,000 divided by $6,000, which is 10 months. However, that 10 month penalty period will not begin until he spends down the $48,000 and applies for Medicaid. (This means that the applicant cannot get Medicaid until 10 months after he has spent down his assets.)
There are several variations of examples for post-February 8, 2006 transfers. The calculations can be complicated. The point is that the "look-back" period is 5 years, however the beginning of the penalty period is postponed until the date of Medicaid eligibility (after resource assets are spent-down.) That is a big problem.