"Divestment Penalty"

When planning for Medicaid, it is important to determine if any transfers of assets have been made that would create a penalty period. A penalty period is a period of disqualification from Medicaid assistance for Long Term Care. A transfer creating such a period is referred to as a divestment.

Transfers occurring during the "look-back period" are subject to the divestment rules, and may create a penalty period. The look-back period is 36 months(60 months in some instances). The first step in determining whether transfers are within the look-back period is to determine the baseline date. As the Winter 2004 newsletter explained, the baseline date is the first date that the person is a Medicaid applicant and in long term care. The look-back period is determined from this baseline date.

If a transfer is subject to the divestment rules, it may create a penalty. The penalty period is the number of months of long term care that will not be covered by Medicaid. The value of the transfer is divided by the average monthly nursing home cost, to determine the penalty period.

Medicaid planning sometimes involves intentional divestment with careful timing of the transfers. It is critical to understand, however, that the penalty periods do not overlap. Each penalty period must be completed before another begins. So divesting transfers must be timed not to overlap.

It is important that clients be informed of the need to retain information regarding their assets once the "baseline date" has been established. This baseline date will affect all Medicaid planning that is done on their behalf.

Smith Bovill, P.C. counsels clients on elder law and Medicaid planning issues regularly as part of its estate planning, probate, and trust administration practice. This letter, as well as all prior letters, are posted on our web site at http://www.smithbovill.com/. Please check our web site for any updates to the newsletter and additional information regarding elder law. This letter, and the information on our web site, is intended to be for informational purposes only. As a result of the constantly changing laws in the Medicaid area, the information provided may change. We would be pleased to discuss this, or any other Medicaid or elder law issues in more detail.

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Smith Bovill, A Professional Corporation

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