Gifting in the Context of Medicaid Applications

What results in a penalty period and why?

 By:  Matthew J. Dorsey, Esq.

In my practice, I get a lot of questions from clients regarding gifting and its impact on Medicaid eligibility.  People often ask “Isn’t there a five year look back for gifts?”  As is often the case in legal matters, the answer is – sometimes yes and sometimes no.

What is the Medicaid look back period?

The Medicaid look back period is the period of time for which you have to provide financial records if you apply for Medicaid to pay for nursing home care.  The discussion in this article is limited to Medicaid coverage that is used to pay for nursing home care only.

How long is the look back period?

The look back period is five years from the date of a Medicaid application. If you apply for Medicaid to pay for nursing home care on November 1, 2025, you will need to provide the Department of Social Services (DSS) with financial records going back to November 1, 2020.  Gifts made within the five year look back period may result in a penalty period.

What is a penalty period?

A penalty period is an amount of time which will delay the onset of your Medicaid coverage.

How are penalty periods calculated?

The amount of the gift(s) you made is divided by the transfer rate for our region, which is set by the state. In our region, the transfer rate for 2025 is $13,916/month. In order to calculate a penalty period, you take the amount of the gifts and divide it by the transfer rate. The resulting figure is the penalty period, in months. For example, if you made gifts of $27,832 to your children in the last five years, then your Medicaid coverage will be delayed for two months ($27,832/$13,916 = 2 months).

Are all gifts subject to a penalty period?

No, they are not – and this is not widely understood.  Any gift made to your spouse is not subject to a penalty period.  For example, if you own your residence with your spouse and transfer your interest to your spouse before you go into a nursing home and apply for Medicaid, that transfer would be known as an “exempt transfer”.  As an exempt transfer, it will not result in a penalty period.  This is a common strategy we recommend to married couples who have one spouse entering a nursing home.

Are there other exempt transfers?

In addition to transferring your interest in your residence to your spouse, you may also transfer your interest to a caregiver child as an exempt transfer.  A caregiver child is a child who has lived with you for at least two years and has provided care to you which enabled you to refrain from entering a nursing home.  In addition, transfers to disabled children or siblings with an interest in your residence may also qualify as exempt transfers.

Is there a dollar limit for gifting?

People sometimes tell me they believe they can transfer up to the annual exclusion amount for federal gift tax purposes, without a potential Medicaid penalty period.  The annual exclusion amount usually goes up every year, and it is currently $19,000/year.  This is the amount of a gift you can make to someone without the necessity of filing a federal gift tax return.  This limit has nothing to do with Medicaid rules and should not be considered a “safe amount” to transfer in the context of a Medicaid application.

Do penalty periods always apply?

If the gift is not an exempt transfer, generally the penalty period will apply.  With that said, there may be an argument that the penalty should not apply because the gift was made with no intent to try to qualify for Medicaid.  Based on the particular facts of the case, a penalty period generated by a gift can potentially be overturned upon appeal in a Medicaid Fair Hearing.  The facts that lead to successful appeals generally involve people who were healthy, independent, and not engaging in Medicaid planning at the time they made the gift.

Gifting in the Medicaid planning context can be complicated.  Seeking advice from an experienced elder law professional will help you ensure that you minimize the risk of penalty periods applying, which could delay the onset of necessary Medicaid coverage for nursing home care.

Matthew J. Dorsey, Esq. is a Shareholder with O’Connell and Aronowitz, 1 Court Street, Saratoga Springs, NY. Over his twenty-eight years of practice, he has focused in the areas of elder law, estate planning, and estate administration. Mr. Dorsey can be reached at (518)584-5205, mdorsey@oalaw.com and www.oalaw.com.