Nursing care services are one of our estate planning clients’ most common concerns. Many clients ask if they can give away their assets to prevent the nursing home from getting it. In response to this question, the first thing we always do is explain the medical assistance process to clients.
Caveat: Medical assistance is complex. This explanation and hypothetical is simplified and does not discuss the exceptions to the rules. The point of this article is to outline the basics as to this common concern and question.
If you need nursing care services and can pay for it, then you pay for it out of pocket just like any other service. If you need nursing care services and cannot pay for it, then you have to apply for medical assistance. The program usually comes in the form of Medicaid. In order to receive assistance through the Medicaid program, you must be eligible. There are many eligibility requirements, but for most people’s purposes, the main eligibility requirement has to do with the person’s means. The application will ask about income and assets. It will also ask if you have made any transfers for less than the fair market value within the past five years.
Transfers for less than fair market value are commonly called “disqualifying transfers.” Disqualifying transfers are often misunderstood, however. Our intent is to clear up that misunderstanding in this article.
In order to be immediately eligible for Medicaid, you cannot have made any disqualifying transfers within the five years preceding the date of the application. This rule is based on North Dakota’s public policy: If you can pay for nursing care services, you pay for the services. If you cannot pay for them because you have given all of your assets away, then you have cut away your own safety net and shouldn’t get a public safety net.
Disqualifying transfers are most easily understood through a hypothetical. Let’s say you made an outright gift: you gifted your daughter a $100,000 certificate of deposit last year and accepted nothing in return. You apply for Medicaid because you have no money to pay for nursing facility care. What happens next?
First, the penalty period would be calculated. The penalty period is calculated based on the amount of the gift and the average cost of nursing facility care:
The number of months and days of ineligibility for an individual shall be equal to the total uncompensated value of all income and assets transferred by the individual, or individual’s spouse, on or after the look-back date, divided by the average monthly cost or daily cost as appropriate, of nursing facility care in North Dakota at the time of the individual’s application during which the disqualifying transfer was determined.
Let’s work through this. The total amount of the disqualifying transfer is $100,000. The daily average daily costs of a nursing facility in 2018 are $270.71. The total amount divided by the daily cost is 368.04. You’d be ineligible for Medicaid assistance for 368.04 days. This means you’d be ineligible (absent extenuating circumstances to be discussed at another time) and have to pay your own nursing care services for 368.04 days after the application.
This is how a basic disqualifying transfer works. It’s also a reason why you should not not be making gifts of assets without the advice of legal counsel.
Medicaid eligibility is complex. Disqualifying transfers are one part of a very large puzzle. Do not rely on this article to make decisions — it’s for educational purposes only. If you need estate planning help, call 701-297-2890 to speak with a member of our Estate Planning Team.