Actually, there are laws in place that not only discourage, but penalize individuals for giving away property just before applying for Medi-Cal. If you transfer your assets within five years of applying for Medi-Cal benefits, Medi-Cal could withhold or delay your benefits. Federal law requires state Medi-Cal agencies to investigate transfers and gifts made by applicants during the five year look-back period.
So, any transfer that you make, no matter how innocent, will come under scrutiny. However, the penalty period is applicable only to individuals needing long-term care in an institution, or who receive home health care. If you need acute care, including hospital or physician services, you will still be eligible to receive those benefits.
Why does Medi-Cal investigate property transfers?
Because Medi-Cal is a “payer of last resort,” all other sources of payment an applicant may have must be exhausted before Medi-Cal will pay for long-term care expenses. So, if you give away assets, you will remain ineligible to receive Medi-Cal benefits for long-term care for a period of time after you first apply, which is called a “penalty period.”
Unfortunately, some people anticipate needing long-term care in the future, but they don’t want to give up all of their assets in order to qualify for Medi-Cal benefits. So, they give away many of their assets to relatives in order to reduce the value of their estate. Well, Medi-Cal does not look favorably on this because those assets could have been used to pay for their own care.
What are the rules regarding property transfers?
The Deficit Reduction Act was passed in 2005. Based on this law, your state Medi-Cal agency can impose a period of ineligibility on anyone who gave away their assets within five years of applying for Medi-Cal. The definition of “asset transfer” is extremely broad, and includes outright gifts and charitable donations, sales of assets for less than fair market value, as well as, forgiveness of debt.
The “look back” period, as it is called, does not begin until you apply for Medi-Cal. So for example, if you gave away $5,000 to a family member 4 years and 7 months prior to applying for Medi-Cal, the period of ineligibility would start on the date you apply, not when you made the gift.
The length of the period of ineligibility, or “penalty period,” depends on the amount of property transferred. Medi-Cal agencies divide the amount transferred by the average monthly cost of nursing home care in your area, in order to determine the length of the penalty period. So if you transferred a house to your sister and the house was worth $100,000, and the average cost of nursing home care in your area is $10,000 a month, then your penalty period will be 10 months.
Are there any exceptions?
There are a few exceptions that apply to certain exempt assets. So, if you transfer assets that are exempt from being considered in determining eligibility for Medi-Cal, there will be no penalty for those transfers. For example, gifts to spouses and disabled children and excluded.
Ultimately, it is best to avoid making gifts if it is likely you will need nursing home care in the near future. If you are not sure, talk to an elder law attorney in California for advice.