A common strategy employed for Medicaid qualification purposes is to turn an asset of a married couple into an income stream for the community spouse. This is due to the name on the check rule, which states that whomever is listed as the payee on the check (or income payment), that is who the income is attributed to. Couple this with the fact that in most states a community spouse can have unlimited income without jeopardizing eligibility for an institutionalized spouse, and the result is a viable strategy for decreasing assets for eligibility purposes. The name on the check rule came under fire in a recent case, but emerged victorious.

All states impose a penalty period for a Medicaid applicant who has transferred assets for less than fair market value during the applicable look-back period. In all states but California, the look-back period is 60 months. In California, the look-back period is 30 months. To determine the penalty period amount, the fair market value of the transferred asset is divided by the penalty divisor, which is usually the average private-pay cost of nursing home care in the state or in a specific region of the state.

When the transferred asset is real property, how is the value of that asset determined? Can an appraised value be used? Should the tax assessor’s value be used? If the property is in disrepair, what type of evidence is required to prove the decreased value of that property? These issues were the topic of a recent case out of New Jersey.

Generally, the transfer of a home for less than fair market value will leave a Medicaid applicant with a hefty penalty. However, if the transfer is to a devoted son or daughter that moves in and provides such care that it delays the applicant’s entry into long-term care, then a legal strategy called the child caretaker exception may apply.