Gifting and Medicaid
The number one question about planning for nursing homes we get is - can my loved one give their property away without getting in trouble? The general rule is if you make gifts within five years of applying for Medicaid, the gift will cause a penalty period during which Medicaid will not pay for care. The penalty period starts when the person who made the gift is otherwise eligible for Medicaid (is in a nursing home, and all assets spent down as required by the applicable Medicaid rules). The penalty period is calculated by dividing the amount of the gift by the "monthly penalty divisor" which is Medicaid's approximation of the monthly cost of care in a nursing home. The result you get is the number of months you will be penalized for making the gift. The rules for transfers to trusts are the same as transfers to people.
We always advise our clients making gifts that they must feel confident that the persons receiving the gifts will cooperate with further planning should the client need care within five years of making the gift. If Medicaid won't pay during the penalty period, someone must pay. Although there are rules permitting an "undue hardship" exception, we do not advise relying on the undue hardship rules.
There are exceptions to the general rule which permit gifts to be made to your spouse, to your minor children, and to your disabled children. You may also make a gift of your home to a child who has lived with you and been a caregiver for at least two years prior to your entering the nursing home.