Gifting & the Penalty Period
Gifts and Divestments
Because most people don't qualify for benefits due to having too many assets, and Medicaid enacted rules that penalize people when they give their money or assets away. Each state has a Divestment Penalty Divisor. When applying for Medicaid, the caseworker will total the value of gifts the applicant made, apply the divisor to a calculation, and will determine the length of time the applicant will be ineligible for benefits.
It's crucial to understand what is a gift and what is not, and don't make any intentional gifts without first talking to a Medicaid Planner.
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What Qualifies as a Gift?
A gift or a divestment is the act of giving another person or entity something of monetary value and not receiving fair market value in return. Examples include:
- Giving money to children or grandchildren
- Giving away physical assets like property or a vehicle without fair payment in return
- Moving assets into certain types of trusts
- Some charitable donations
- Purchasing certain assets like a non-compliant annuity
What Doesn't Qualify as a Gift?
- Purchasing exempt assets like a Medicaid Compliant Annuity
- Giving money to a spouse before becoming Medicaid-eligible
- Selling an asset in which fair payment is received
The Lookback Period
Often confused with the Medicaid penalty period, the term “lookback period” refers to the five-year period before someone applies for benefits. The Medicaid caseworker will review financial records and bank statements from the previous 60 months to determine if any gifts or divestments were made. If gifts were made, the applicant will be assessed a penalty period.
The Penalty Period
The penalty period refers to the length of time someone is ineligible to receive Medicaid benefits due to gifts or divestments during the lookback period. The penalty period can only begin when the applicant is considered "otherwise eligible" for benefits, meaning they qualify both situationally and financially for Medicaid, except for gifts made during the lookback period.
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