Date: January 20, 2022Attorney: Shawna A. Brown and Richard I. Miller

In general, a New Jersey resident is eligible for Medicaid if his assets do not exceed the State’s resource limit. However, an applicant cannot simply give money away to bring himself under the limit. He will be subject to a Medicaid penalty if he gives or transfers assets to others within five years of applying for Medicaid. The penalty is a period of time the applicant is ineligible for Medicaid and is determined by dividing the amount transferred by what Medicaid determines to be the average monthly cost of a New Jersey nursing home. The current divisor in New Jersey for the purpose of calculating a Medicaid penalty is $361.20 per day.

New Jersey and Federal law, however, permit the penalty to be “cured” if all transferred assets are returned to the Medicaid applicant. The New Jersey State Medicaid Manual requires the full market value of the transfer or gift be returned.   Unlike other states, New Jersey does not permit partial cures of penalties. In New Jersey, the entire gift must be returned to undo the penalty.   

The State Medicaid Manual requires that the transfer be returned in cash or another acceptable form.  On its face, this seems relatively straight forward.   However, as is often the case when applying for Medicaid, things are not always as simple as they seem.   

This was highlighted in a recent NJ appellate case involving a married couple who transferred cash to a child. The child subsequently used the cash to purchase a marital residence for her parents. The house was titled in the name of the child as purchaser. After several years living in the house, the father required admission to a nursing home.   

Since the married couple had minimal assets, the father needed to apply for Medicaid to cover the cost of his care. The couple’s cash gift to child, however, occurred within 5 years of father’s Medicaid application and disqualified him from eligibility. To cure the penalty, the child conveyed the marital residence (and cash) to her mother who remained living in the house. The value of the assets at the time they were returned to the mother exceeded the original cash gift made to the child. Despite the return of the entire gift amount, the County Board of Social Services imposed a penalty and erroneously asserted the gift was not cured because it was not returned in the same form, i.e., the gift was made in cash but returned as a both a house and cash. The County’s decision was upheld by an Administrative Law Judge.

After years of litigation, the appellate court reversed the penalty, finding the transfer was fully returned based upon a plain reading of New Jersey law.  This enabled the father to qualify for Medicaid and allowed the mother to keep the house.

Although the father eventually qualified for Medicaid, this case illustrates the impact gifts may have on government benefits and the complications that may arise during the Medicaid application process even when the regulations appear clear and unambiguous.

For this reason, is often advisable to consult a qualified elder law attorney when navigating the Medicaid process, particularly when transfers and gifts have been made by the applicant or his spouse.

If you or your loved one is contemplating Medicaid and have concerns about gifts or transfers made during the five-year look back period, we encourage you to contact the Elder Law attorneys at Mandelbaum Barrett PC to address your questions and develop a plan to achieve your family’s goals.