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Medicaid Exemptions and Income Tax Refunds

Daniel S. Williford Author Photo
Daniel S. Williford
Jul 26, 2018
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 Medicaid Transfer Exemptions

Under New York State Social Services Law, uncompensated transfers or gifts made in the five-year period prior to someone needing long-term skilled nursing care will result in an ineligibility period.  The ineligibility period is calculated by dividing the total number of gifts by the regional rate (2018 regional rate for Monroe County is $11,692).  For example, if someone makes $100,000 worth of gifts during the five-year lookback period, the person will be ineligible for Medicaid for 8 ½ months. 

When determining Medicaid eligibility, there are many transfers under current law that do not result in any transfer penalties.  It is always important to know which transfers are exempt and how to conduct each type of transfer should the need arise. 

Homestead Exemptions

A homestead is defined by Medicaid as the primary residence occupied by the applicant, the applicant’s spouse, or the applicant’s minor, disabled or blind child. Under NYS Social Services Law, a person’s home can be transferred to five categories of people without affecting a person’s Medicaid eligibility:

1)  Spouse

2)  Minor Child

3)  Disabled or blind child of any age

4) An adult child who has lived in the home of the parent for at least two years prior to the parent’s institutionalization, and who has been a caregiver to the parent

5)  A sibling of the Medicaid applicant who has resided in the home for at least one year prior to institutionalization and who has an equity interest in the home. 

It should be noted that the last category is applicable if a sibling has an equity interest which consists of the sibling having their name on the deed, or pays all or part of the mortgage or has paid for capital improvements, or paid real estate taxes.  All other transfers of the homestead aside from the above five categories will result in an ineligibility period based upon the equity value of the home owned by the applicant.   

Transfers of Assets Solely for the Benefit of Spouse or Disabled Child

Transfers directly to a spouse or disabled child are exempt transfers.  Under current NYS law, however, the transfer does not need to be made directly to that individual.  Transfers are exempt if made solely for the benefit of a spouse or disabled child.  One way, and a very common way of transferring assets for the benefit of an individual without it being a direct transfer is into a trust.  In order to use this exemption, the trust must be carefully drafted so that no other person can benefit from the trust.  New York State also requires that the estate of the spouse or the disabled child be the beneficiary of the trust upon death.  This is based upon the theory that sole benefit included the right to dispose of the assets upon death.

Income Tax Refund Transfers

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 provides that income tax refunds are countable as income for any federal program, including Medicaid.  Refunds are also not countable as a resource for Medicaid qualifying purposes, when received or for the period of 12 months thereafter.  This means that income tax refunds can be gifted 12 months after receipt with no ineligibility period. For New York State income tax refunds, regulations state that state income tax refunds are disregarded as income in the month of receipt and disregarded as a resource the following month.    

Many clients receive their Required Minimum Distributions (RMDs) from retirement accounts.  Clients can receive their income tax refund and transfer the refund into a Medicaid Asset Protection Trust free of any ineligibility period.  There are also situations where clients liquidate assets in order to engage in various forms of long-term care planning.  If highly appreciated assets are liquidated, the client can elect to withhold a substantial portion to pay the income tax associated with the liquidation of the asset.  If the client waits until after they are privately paying for skilled nursing care then there could also be a sizable tax deduction at the end of the year.  This can result in a sizeable refund, and when received the client can gift the refund to anyone, or into a Medicaid trust with no ineligibility period.     

For assistance with these matters, please contact a member of our Estate Planning practice. 

This publication is intended as an information source for clients, prospective clients, and colleagues and constitutes attorney advertising. The content should not be considered legal advice and readers should not act upon information in this publication without individualized professional counsel.

About MCCM

McConville Considine Cooman & Morin, P.C. is a full-service law firm based in Rochester, New York, providing high-quality legal services to businesses and individuals since 1979.  With over a dozen attorneys and a full paralegal support staff, the firm is well-positioned to right-size services tailored to each client. We are large enough to provide expertise in a broad range of practice areas, yet small enough to devote prompt, personal attention to our clients.

We represent a diverse range of clients located throughout New York State and New England.  They include individuals, numerous manufacturing and service industry businesses, local governments, and health care professionals, provider groups, facilities and associations. We also serve as local counsel to out-of-state clients and their attorneys who have litigation pending in Western New York courts.  For more information, please contact us at 585.546.2500.