If a Medicaid applicant gives away assets without receiving fair market value in return during the five year Medicaid look back period, a Medicaid penalty period for the uncompensated transfer of assets will generally result.  The Medicaid penalty period runs prospectively from the date the applicant is determined otherwise eligible for Medicaid. As a practical matter, the Medicaid transfer penalty means that Medicaid will deny payment for your long-term care until the penalty expires. What are your options?

First, consider returning all of the transferred property. If this is not feasible, and if you were the victim of fraud, theft or conversion, it may be possible to waive the penalty period on the grounds of an undue hardship if the transfer penalty would deprive the applicant of medical care such that her health or life would be endangered and the transferred assets are beyond her control and  cannot be recovered.  The applicant must show a good faith effort to recover the missing funds, including legal action, if necessary.  This can include filing a civil or criminal action to recover the funds or objecting to discharge of the claim in bankruptcy).

If the grounds for an undue hardship waiver cannot be established, the presumption that transfer of assets was undertaken to qualify for Medicaid benefits may be rebutted by presenting convincing evidence that the assets were transferred solely for some other purpose. N.J.A.C. §10:71-4.10(j). However, where some possibility of Medicaid eligibility appears to have influenced the decision to transfer, the presumption will not be overcome.

It may be possible to overcome the presumption by demonstrating that the assets were transferred for entirely other purposes than Medicaid eligibility or by adjusting the value of the gifted property. A retroactive appraisal may make the difference. In J.W. v. Camden County Board of Social Services and DMAHS, HMA 0336-2016S, Final Decision, Dir. (December 13, 2016), the petitioner sold the home to his children for a reduced price well below the tax-assessed equalized value of the property. The children made extensive repairs which increased the value of the property. Nevertheless, the Medicaid determination imposed a transfer penalty based upon the sale of the property for allegedly at a price below the fair market value.

The children successfully rebutted the presumption that the transfer was undertaken to expedite Medicaid for their parent.  On Fair Hearing, the Medicaid transfer penalty was set aside on account of the property’s deplorable condition, established with a retroactive appraisal as being below the purchase price at the time of purchase. The reduced valuation meant that the transfer was not at all for an uncompensated value. While challenging a Medicaid transfer penalty is not for the faint of heart, a seasoned elder law attorney can help you prevail.

About Jane

Jane is an Associate Attorney with Rothkoff Law Group, an elder care law firm. Jane received her LL.M. in Taxation from Temple University. She has focused on the fields of tax and estate planning, asset protection planning for elderly and disabled clients, and Special Needs Trusts since 2005. Jane has presented on tax, Medicaid planning and estate planning topics to a broad range of groups. When not in the office Jane spends time with her family and volunteers for the Delaware Valley Chapter of the Cystic Fibrosis Foundation.

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