Transfer Rules

The enactment of the Deficit Reduction Act of 2005 on February 8, 2006, has radically altered the asset transfer rules for clients seeking long term care under Medicaid.

These rules were adopted by the State of Michigan effective July 1, 2007.

In summary, the new law imposes the following changes on all asset transfers:

• extends the look-back period for all transfers to five years;

• changes the trigger date for the divestment transfer penalty associated with all gifts or transfers from the date of the gift to the date of admission to a nursing home and application for assistance;

• eliminates rounding down of all monthly gifts; and,

• effectively eliminates monthly gifting.

Look-Back Extension

Prior to enactment of the Deficit Reduction Act of 2005, the duration of the look-back period was dependent upon whether a transfer was made to or from an individual or a trust. Under the new rules, this distinction no longer exists. All transfers for less than fair market value are subject to a 60 month look-back.

Change in Beginning Date of Ineligibility Penalty

One of the more radical changes in the Act is the adjustment of the penalty period trigger date. Under the old rules, the ineligibility period associated with an asset transfer began in the in month of or the month following the date of the gift or transfer. Under the new rules, the beginning date for the penalty period is moved forward to the date on which you are in a nursing home and have applied for medical assistance and would otherwise be eligible for medical assistance but for the gift or transfer.

Under the old rules, assuming a sample divestment of $75,000 was made in January 2006 with a $5,549 penalty divisor, the divestment penalty begins in January 2006 and ends on February 1, 2007. Assuming that no care is needed prior to February 1, 2007, the amount transferred will be fully protected on that date with no additional penalty. If skilled care begins before the penalty period expires, your client would be responsible to privately pay for her own care until the penalty period ends.

Under the new rules, assuming the sample divestment of $75,000 is made on or after enactment of the Act, the divestment penalty begins on whatever date you are in a nursing home and apply for assistance and continues for 13 months from the date of admission and application for help.

Under the new rules, any gift or transfer made within 5 years of an application for assistance will trigger a divestment penalty. Under the new rules you will avoid a divestment penalty period only if the date of admission and application is more than 60 months after the date of the gift or transfer.

Elimination of Rounding Down

Under the old rules many state program rules, including those in Michigan, allowed the value of gift or transfer to be rounded down to the next lowest whole number. For example, a gift of $11,000 subject to a $5,549 monthly divisor results in a penalty period of 1.98 months rounded down to a one month penalty. In the past, this technique has been leveraged by making repetitive, serial gifts or transfers to compress the transfer value. Under the Act, rounding down the penalty (or disregarding a fractional month penalty) is no longer permitted.

Accumulation of Monthly Transfers

Multiple fractional asset transfers made prior to the Act but within the look-back period were separately computed. Through the use of rounding down, this allowed the compression of the gift value. Under the new rules, the total value all gifts or transfers made during the look-back period are added together and treated as a 1x transfer. This cumulative approach to gifting effectively eliminates any prior advantage gained by monthly gifting strategies.

For 2008, the divestment or transfer divisor is $6,191 per month.