"I’ve heard that you can’t give anything away within three years of going to a nursing home," says Mabel to her friend during a bridge game at the local Senior Center. "No," Gertrude says, "What my sister-in-law told me is that you can’t give away anything within five years of applying for Medicaid."

Actually, Mabel and Gertrude are both wrong, though we hear similar statements from senior citizens and their children quite often.

It is true that when you apply for Medicaid, the state will "look back" five years to see what, if any, gifts have been made by the Medicaid applicant (or his or her spouse, if they are married). This doesn’t mean that a Medicaid applicant can’t make gifts during this five year look back period, it just means that the applicant will be penalized for gifts made during that period. The key is to determine whether or not that penalty period is still in effect once it becomes time to apply for Medicaid.

In Missouri, The Missouri Income Maintenance Manual explains the look back period and provides the formula by which a Medicaid applicant is penalized for gifts made. In Kansas, it is the Kansas Economic and Support Manual which provides the formula. Basically, the analysis in both states begins as of the earliest day on which a Medicaid applicant is both in the nursing home and has applied for Medicaid.

There are certain assets which are considered exempt (including but not limited to a Medicaid applicant’s residence, vehicle, personal property, and pre-paid funeral plan) and the other assets will be countable. The day on which an applicant applies for Medicaid essentially opens a window backwards of 60 months in which KanCare in Kansas or MO HealthNet in Missouri will identify any gifts or transfers made for less than adequate consideration.

In Missouri, the current monthly penalty divisor for Medicaid applicants if $6,425. This means that for every $6,425 you give away, you will be ineligible for Medicaid for one month. The penalty divisor in Kansas is $220.50 per day. Keep in mind that "giving money away" also refers to any transfers made for less than fair market value----like selling your house to your son for $80,000 when the fair market value is $120,000 (that would be a $40,000 gift). Gifts also include adding your child to your house as a joint owner. If your house is worth $100,000 and you add your daughter to the title, that is considered making a gift of $50,000 for Medicaid purposes.

Every individual who is in a nursing home and private paying for their care should understand that gifting is an option. However, there are a number of other steps they can take before gifting away their assets, ranging from personal care contracts, private annuities and raising the Community Spouse Resource Allowance. Some senior citizens are, understandably, not comfortable giving their assets away. On the other hand, some seniors are all too eager to transfer their assets to their children and then wind up in a disastrous situation (for example, in a nursing home, broke, needing to qualify for Medicaid but unable to because the large transfer they made has created a penalty period that will last for another 8 months!) As always, anyone who is considering making gifts in order to preserve assets and qualify for Medicaid should first consult with a knowledgeable elder law attorney as gifting in some circumstances may constitute financial elder abuse.

For more information on Medicaid planning:

How to Pay for Care When Your Spouse Gets Sick

Why You Shouldn't Walk into the Medicaid Office Alone

The Consumer's Guide to Medicaid Planning and Division of Assets