What are Uncompensated Transfers and Penalty Periods?

Many people gift property to others to qualify for Medicaid only to find out that they’re still not qualified. Usually this situation is caused by Uncompensated Transfers.  These transfers trigger “penalty periods.” So, what is an Uncompensated Transfer? How do such transfers incur a penalty? What is the Transfer Penalty and how does it work? Here are some useful definitions.

Uncompensated Transfer:  This is the transfer of assets (cash, cars, real estate etc.) where less than equal value was received for the exchange.  That means you gave something to someone without getting paid the full value of the thing you gave away. For example, you gave your ’67 Mustang to your son for $10.  If you gave away anything valuable and didn’t get equal value back in exchange, that is an Uncompensated Transfer.

Look Back Period:  There is a time limit on looking at Uncompensated Transfers.  The state may only look back in time for a period of 60 months.  If the Uncompensated Transfer occurred more than 60 months prior to an application for Medicaid, then the transfer is not a penalizing transfer.  If the Uncompensated Transfer occurred within 60 months of applying for Medicaid, then the transfer gets you a Penalty Period.

Penalty Period:  This is the time period where the Medicaid applicant is disqualified from Medicaid because of the Uncompensated Transfer.  In other words, the applicant is otherwise qualified for Medicaid, but because of the Uncompensated Transfer, they are disqualified for a period of time.

Penalty Divisor:  This is a number set by the state which is used to determine the Penalty Period.  It is based upon the current average semi-private bed rate for nursing homes in your state.  It is adjusted once a year in order to stay accurate. In Arkansas as of the date of this article, the Penalty Divisor is $5,493.  

Calculating the Penalty Period:  The Penalty Period in Arkansas is determined by the following formula:

Amount of transfer (divided by) Penalty Divisor = Penalty Period.

Example:  If a person made Uncompensated Transfers totaling $100,000 during the 5 years prior to applying for Medicaid, those Uncompensated Transfers would result in a Penalty Period of 18.2 months

$100,000 (divided by $5,493) = 18.2 month Penalty Period.

Penalty Period Start Date:  The Penalty Period incurred for Uncompensated Transfers does not begin to run until:

1, The applicant is institutionalized (in a nursing home)

  1. An application has been submitted
  2. The applicant is Resource Eligible:  meaning the applicant had less than $2,000 in resources on the 1st day of the month when the application was submitted.  
  3. The applicant was Income Eligible:  meaning the applicant’s income was less then the state published Income Cap or a Miller Trust was in place on the 1st day of the month in which the application was submitted.  The Income Cap in Arkansas as of the date of this article is $2,250 per month.  Otherwise the applicant does not qualify for Medicaid or the start of the Penalty Period.

What is a Miller Trust?

There are a lot of rules to navigate when it comes to Medicaid qualification.  We know those rules and we can assist your family in the preservation of family wealth.  Give us a call if you have questions.