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Medicaid Transfer Penalty Trap–Part 5

This edition of the Koldin Law Center E-Newsletter begins a series about the Medicaid Transfer Penalty rules and the trap set for people who apply for Medicaid for nursing home care.

All prior newsletters are saved on our website. You can read them by clicking here.

In the previous newsletters in this series, we discussed how the “Medicaid Transfer Penalty Trap” results from a transfer penalty period of ineligibility being imposed after your life savings has already been depleted down to the Medicaid eligibility level of $15,900 (2021 figure for a single person).

The previous newsletters discussed three methods to prevent or reduce this “Medicaid Transfer Penalty Trap”: (1) Return of gifts, (2) Prove transfer was not made to deplete life savings to qualify for Medicaid, and (3) Use of Promissory Note.

In the last newsletter discussing Promissory Notes, we reviewed how the loss of life savings could be reduced after a transfer penalty has been imposed.

In this newsletter we will look at how additional life savings can be protected by using a Promissory Note even when you are already in a nursing home.

Example 1: John is a single person. He entered a nursing home on August 1, 2021. He has life savings of $200,000. He has income from Social Security and Pension of $2,000 per month. He previously gifted $60,000 to his son, Peter, on May 1, 2019. John paid privately $13,000 each month at the nursing home until his life savings was down to $15,900 and applied for Medicaid on December 1, 2022.

In this example, we have the “Medicaid Transfer Penalty Trap” where the Medicaid Agency will penalize John for his gift to Peter for a period of 5.5 months of ineligibility running from December 2021 through mid May 2022. John will then be eligible to receive Medicaid coverage as of mid May 2022. The nursing home will expect to be paid during these 5.5 months and look to John’s $15,900 and to Peter’s $60,000 to cover approximately $71,000 of bills.

Example 2: Same as Example 1, except instead of spending his life savings towards the cost of his care, John loaned Peter $120,000 on August 15, 2021 in exchange for a Promissory Note and gifted Peter an additional $70,000. John kept $10,000 in his name. Assume the Promissory note pays out $9,400 per month for 13 months. Since John has less than $15,900 in his name, he can apply for Medicaid on September 1, 2021.

In this example, the total transfer is $60,000 from the prior transfer plus $70,000 for the new transfer for a total of $130,000. The transfer penalty that is assessed by the Medicaid Agency is approximately 13 months running from September 2021 to October 2022.

During this 13 month period of ineligibility, John will receive $10,000 from the Promissory Note each month and $3,000 from Social Security and Pension which he will use to pay the nursing home bill. At the end of 13 months, the transfer penalty will be over and the Promissory Note will have fully paid out and John will be eligible to receive Medicaid coverage for his nursing home bill.

In Example 1, there was a “Medicaid Transfer Penalty Trap” where the nursing home was looking for $71,000 in unpaid bills during the penalty period. In Example 2, through the use of a Promissory Note, John was able to protect an additional $70,000 gift to his son and then qualify for Medicaid. There is a big difference in the outcome for John and his son by using a Promissory Note.

The Koldin Law Center, P.C. is available to help. We assist families in protecting their life savings even when someone is already in a nursing home.

For more information about Medicaid, please see our website by clicking here.

At the Koldin Law Center, P.C., located in East Syracuse, New York, we have over 50 years of experience helping individuals plan for immediate crisis and long term care. When the Koldin Law Center, P.C. handles a Medicaid case, we not only handle the entire application process, but we also review asset protection options with our clients. We review with our clients who are already in a Nursing Home options to protect some or all of their assets beyond merely establishing Medicaid eligibility. We do not charge a fee for the initial consultation. We welcome your children, family attorney, accountant, and/or financial planner to be present at the initial consultation.

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Remember that the Koldin Law Center offers many services for clients of all ages. Our services range from basic estate planning such as a simple will to complex estate planning including asset preservation planning.


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Medicaid Planning And MedicaidApplications

Planning For Individuals With Disabilities

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