New Transfer Of Asset Rules Makes Advanced Planning For Medicaid Eligibility Imperative!

By: Anthony J. Enea, Esq.*

On December 18, 2005, the U.S. Senate in a vote of 51-50 with Vice-President Cheney casting the deciding vote passed the Deficit Reduction Act of 2005 ("DRA"). As a result of some differences in the Senate and House versions, the legislation went back to the House of Representatives for a vote. On February 1, 2006, the House of Representatives by a vote of 216 to 214 approved the DRA. It is anticipated that the new legislation will be signed into law by the President within a matter of days. The states have a specified period of time within which to adopt said changes and enact enabling legislation.

Pursuant to its provisions, the DRA will become effective as of the date it is signed into law. For purposes of Medicaid eligibility and the transfer of asset rules, it will affect all transfers made on or after the new legislation is enacted. There are a number of provisions in the DRA which affect Medicaid eligibility and the transfer of asset rules in three (3) significant ways:

1. Creation of a sixty (60) month look back period for all transfers of assets, irrespective of whether they are outright transfers or transfers to certain trusts. Under the current law there is a sixty (60) month look back period for transfers to certain trusts (i.e., Irrevocable Income Only Trust) and a thirty-six (36) month look back for all other transfers. Thus, under the new DRA, an applicant for Medicaid will be required to inform Medicaid of all transfers made for the five (5) years preceding the date Medicaid is requested.

2. Under the pending legislation, the penalty period (period of disqualification for Medicaid) created by a non-exempt transfer of assets will commence on the later of (a) the month following the month in which the transfer is made (existing law), or (b) the date on which an individual is both receiving institutional level of care (i.e., is in a nursing home or receiving care at home under the Lombardi program) and whose application for Medicaid would be approved but for the imposition of a penalty period at that time.

Therefore, under the pending legislation, the penalty period for a non-exempt transfer of assets made within the sixty (60) month look back period will commence when the applicant has $4,150 or less, is receiving institutional care (in a nursing home or under Lombardi program) and has applied to Medicaid for assistance. This is the most onerous measure contained in the new legislation.

It should be noted that, pursuant to the provisions of the new DRA, and as under the prior law no penalty period is imposed for transfers made by an applicant requesting non-waivered community Medicaid.

3. An applicant's Homestead (house, condo, co-op) with equity above $500,000 will render an applicant ineligible for Medicaid. This provision does not apply if a spouse, child under age of 21, or a blind or disabled child resides in the house. Each state, however, is given the ability to increase the amount of permitted home equity to an amount not in excess of $750,000. Additionally, homeowners will have the ability to reduce their equity through a reverse mortgage or home equity loan.

Some of the other significant changes contained in the DRA with respect to Medicaid are that: (a) annuities will be required to name the state as a remainder beneficiary, and annuities that have a balloon payment will be considered a countable asset; (b) multiple transfers in more than one month must be aggregated; (c) the "income first" rule will be mandatory in all states (already required in New York); (d) penalty periods will be imposed for partial months (rounding down will no longer be permitted); (e) Partnership long term care insurance policies will be permitted in additional states other than the four presently permitted.

However, more than anything else, the new legislation illustrates the need for seniors to do advance planning to protect their life savings for purposes of long term care and Medicaid planning. I am confident that the elder law bar in the near future will provide a thorough analysis of the new legislation and the planning options that will be available.