The Florida Medicaid Five-Year Look-Back and Transfer Penalties

Any transfer for less than fair market value: cash gifts to children or grandchildren, adding a child's name to a deed, selling a car to a relative for a dollar, paying a grandchild's tuition, forgiving a loan, charitable donations, and putting assets into most trusts. Payments for goods and services at a fair price are not transfers. Neither are transfers between spouses.

DCF finds transfers by reading five years of bank statements, which every Florida application must include. Unexplained withdrawals over a few hundred dollars are questioned. Families should expect to document them.

Total uncompensated transfers in the look-back, divided by Florida's penalty divisor of $10,645, equals the penalty period in months, including a partial month. Examples:

• $25,000 gifted to a daughter three years ago: about 2.3 months.
• $100,000 home transferred to a son eighteen months ago: about 9.4 months (unless an exception applies to the home).
• $6,000 in cash withdrawals the family cannot explain: about 0.6 months.

There is no cap on the penalty. A large gift produces a penalty longer than five years.

This is the part most families get wrong. The penalty period does not begin on the date of the gift. It begins on the date the person is otherwise eligible: in a nursing home or approved for the long-term care program, under $2,000 in countable assets, under the income cap or with a Qualified Income Trust, and with an application on file. A gift made four years ago does not "expire" in a year; if the person applies today with assets under the limit, the penalty starts today.

The practical consequence is that a family that has already spent down to the limit and then discovers a gift is facing a penalty period with no money left to pay for care. Planning finds the gift first.

Federal and Florida law exempt several transfers from the penalty:

• Transfers to a spouse, or to a trust for the sole benefit of a spouse.
• Transfers to a blind or disabled child of any age, or to a trust for that child.
• Transfer of the home to a child who lived in it and provided care for at least two years that kept the applicant out of a nursing home (the caregiver child exemption), to a sibling with an equity interest who lived there for at least a year, or to a child under 21.
• Transfers where the applicant can show the assets were transferred exclusively for a purpose other than qualifying for Medicaid, which is difficult to prove but not impossible.
• Transfers where imposing the penalty would cause undue hardship.

Whether an exemption applies is a legal question and one of the clearest cases for involving an elder law attorney.

A transfer can be cured, in whole or in part, by having the recipient return the money or property before the application is decided. A full return erases the penalty; a partial return reduces it proportionally. Returned funds are countable assets again and have to be spent down, but they can be spent on care, which is far better than a penalty with no funds. Where the recipient has spent the money, other planning strategies may reduce the damage. Do not file an application with an uncured transfer in it without advice.

The IRS lets a person give $19,000 a year to any number of people without filing a gift tax return. That rule has nothing to do with Medicaid. Every dollar given away in the look-back is a transfer for Medicaid purposes, whether or not it was tax-free. This is the single most common misunderstanding we hear.