Is Transferring Assets Illegal?

Some think that transferring assets is illegal activity, and that to do so is an unlawful effort to “hide” the assets.  That is incorrect.  In 1996 there was a law passed by Congress that did make it a criminal act to give away assets to get Medicaid.  However, the law was later repealed.  Thereafter, a law was passed which made it a crime to “counsel” someone to transfer assets to obtain Medicaid.  The Attorney General of the United States of American found that this law was an unconstitutional violation of the First Amendment.  As a result, she determined that it was not enforceable.  A U.S. District Court judge in New York agreed.  As a result, the law is unenforceable as of 2007. 

Nevertheless, you should always consult with a knowledgeable legal advisor when considering Medicaid planning since these laws can change.  The advisor can help you know the current status of the laws.   

Another major rule of Medicaid is that there is a penalty to transfer assets.  This penalty is in place because the government doesn’t want persons who realize they are headed to a nursing home to simply give all their money to their relatives and immediately obtain Medicaid.  Thus, it has imposed a penalty on those who transfer assets for less than fair market value.  

What is this penalty?  It is a time period, after the transfer of assets, wherein the transferring owner will not be granted Medicaid.  The penalty is determined by taking the amount of the transfer and dividing it by a “divisor” (in 2007 it is approximately $6000).  Under current Medicaid law, the government looks back sixty month from the time that the Medicaid application is filed, and if there are any transfers during that period a penalty will be applied.  The penalty starts at the time the person is in the nursing home and is otherwise eligible for Medicaid but for the penalty.