Can spouses make transfers to each other without triggering a Medicaid penalty?
We all know, in general terms, that when one spouse needs nursing care, in order to qualify for Medicaid they go through a process called Division of Assets.
The State looks at the assets that the married couple has and put those assets into two categories. The State says certain things are exempt: a house, a car, prepaid funeral plans for both spouses, a small amount of cash value life insurance, and personal property. In addition, there are some variations among the states. For instance, in Kansas the retirement plan of the community or at home spouse also is exempt.
In many cases, it is appropriate where one spouse needs care, to put the residence into the name of the well spouse. That way, if the spouse who needs care qualifies for Medicaid and the well spouse later sells the residence, all of the proceeds from the residence will be protected from a Medicaid spend down.
When we have this discussion with our clients, however, many people raise concerns about the five year look back. They wonder if transferring the residence from one spouse to the other has to be done years ahead of time as it might run afoul of the five year look back rule regarding Medicaid penalties. Of course, that five year look back rule says that if you make gifts, the State will levy a penalty on any transfers done within the five years prior to the Medicaid application.
Regarding transfers between spouses, however, there is no five year look back. In other words, the assets can be transferred from the name of one or both spouses into the name of the Community or at home spouse with no transfer penalties whatsoever.
There are some minor exceptions to this having to do with the timing of the transfer and the Medicaid application, but the general rule is that transfers between spouses do not come within the five year look back. Thus they are totally exempt.
For more information:
Consumer's Guide to Medicaid Planning and Division of Assets