5724 Transfer of Property Penalty

5724 Transfer of Property Penalty - If the LTC individual or spouse have transferred property for less than fair market value, the individual is ineligible to receive Medicaid covered LTC services for a specified period of time. This period of ineligibility is called the Transfer of Property Penalty Period. The penalty period only impacts long term care services and does not disqualify the individual for other medical assistance.

The penalty period is determined by considering the uncompensated value, date the asset was transferred and the appropriate transfer of property divisor.

The W-9: Transfer of Property Worksheet has been developed as a tool to assist with the calculation of the penalty period.

5724.1 Transfers of Income - If a lump sum is transferred or refused, the total amount of income is considered uncompensated value as per 5725.2 and a penalty period shall be established. For transfers of an ongoing source of income that would normally be received on a regular or intermittent basis, the amount of income that was transferred shall continue to be considered available in determining the individual's patient liability, client obligation or participant obligation. As transfers only impact LTC, the income is not considered in any Medically Needy determination.

5724.2 Uncompensated Value - The uncompensated value is the difference between the fair market value of the asset at the time of the transfer and the value of compensation received for the asset. The amount of uncompensated value is used to determine the penalty period. Consider only the portion of the asset in which the LTC individual or spouse had interest.

Example: If real property is owned solely by the LTC individual, the addition of another owner would reduce the individual's ownership interest by one half the value. For personal property, the addition of another owner would not be relevant as the full value is still attributed to the LTC individual (Note: a referral for a voidable transfer may be necessary per 1725.6)

Fair market value is an estimate of the value of an asset, if sold at the prevailing price at the time it was transferred. To determine the fair market value, consider principles set forth in 5200 (2) and (6) regarding ownership of property, and 5200(7) and 5320 regarding valuation of property.
Compensation is the amount the individual received for the asset, such as the sale price of property. Compensation must be in a tangible form with intrinsic value. If the purchaser assumed any debt as part of the transfer, this is viewed as compensation. Consider only the compensation actually received, or expected to be received.

Example: Joe sold his home to a neighbor for $50,000 cash. The neighbor also assumed the $20,000 mortgage on Joe's home. The total amount of compensation is $70,000.
Unless specifically defined in item D, use the following process to determine the uncompensated value of the transferred asset.
1. Establish the fair market value of the asset;
2. Determine the equity value. The equity value is determined by reducing the fair market value by any encumbrances. An encumbrance is a legally binding debt against the resource, or money that is owed on the asset, at the time of the transfer. Examples include a mortgage, loan, lien or other debt that is secured by the resource. Do not include debt a purchaser assumed as an encumbrance.
  
  Example: Consider Joe above. Because the purchaser assumed Joe's debt as part of the sale, this is not an encumbrance. Estate Recovery currently holds a $20,000 lien against Joe's house and is the only encumbrance. Total encumbrance allowed is $20,000.
3. Reduce the equity value by the amount of any compensation received.
4. The remaining amount is the uncompensated value.
The following shall be used to determine the uncompensated value of the specified asset transferred:
1. The uncompensated value when an individual buys a life estate in another's home and the individual has not maintained residence for 12 months is the purchase price of the life estate. (see 5723(5)(b)).
2. For the purchase of a promissory note, loan, mortgage or contract sale, if the contract terms provide balloon or deferred payments or if the contract contains a cancellation clause, the uncompensated value is determined by reducing the fair market value, as defined in item (a) by the amount of compensation (payments) received. If the contract exceeds the life expectancy of the individual who owns the note, loan or mortgage, the following steps are applicable:
  1. Determine the fair market value. This is the amount used to purchase the loan, note, mortgage or contract (i.e. the amount the individual loaned or provided to the receiver).
  2. Determine the CURRENT life expectancy of the person who made the purchase (i.e., loaned the money) based on the Life Expectancy Tables.
  3. If the life expectancy of the individual exceeds the resulting term of the contract, move to step d. Otherwise, there is no penalty for this purchase.
  4. Determine the expected value of the payments to be received during the individual's lifetime.
    
    Example: A note calling for repayment of $100/month has an annual anticipated return of $1200. For an individual with a life expectancy of 10 years, the expected return is $12,000.
  5. Determine the total payments received from the agreement to date.
  6. Add the expected return to the amount received ((d) + (e)) for the total amount of compensation received.
  7. Determine any remaining encumbrances against the property which are not included as compensation.
    
    NOTE: Normally any debt assumed by the agreement would be amortized over the terms of the note and a single reduction would not be applicable.
  8. Subtract the total compensation and subtract the total encumbrances from the fair market value, or original loan value to determine the total uncompensated value.
3. For the transfer of an annuity:
  1. Determine the value of the annuity at the time it became irrevocable. This is generally when the annuity was annuitized.
  2. Determine the annuitant's life expectancy at the time the annuity became irrevocable, or was annuitized. Use the Life Expectancy Table for this determination.
  3. Using the payment terms of the annuity, determine the total amount of compensation using the greater of:
    - the expected amount to be paid out during the annuitant's lifetime, or
    - the total amount paid by the annuity to date (used if the annuitant has outlived the original expected life expectancy).
  4. Subtract the total amount of compensation from the original value, from item (a) to determine the uncompensated value.

5724.3 Multiple Transfers of Property - Multiple transfers of property are combined and treated as a single transfer, as described in this section. When a single asset is transferred or when a number of assets are transferred at different times, the total value of the transferred property is considered. Consider all transfers within the appropriate look back period and determine the uncompensated value resulting from each transfer. Consider the total uncompensated value as follows:

Combine all transfers occurring prior to February 8, 2006 unless considering the transfers as separate events would result in a greater penalty period.
Combine all transfers occurring on or after February 8, 2006.

Multiple transfers of property are combined and treated as a single transfer, as described in this section. When a single asset is transferred or when a number of assets are transferred at different times, the total value of the transferred property is considered. Consider all transfers within the appropriate look back period and determine the uncompensated value resulting from each transfer. Consider the total uncompensated value as follows:

5724.4 Penalty Period - For uncompensated transfers, a penalty period of restricted Medicaid coverage is imposed. During the penalty period the individual is not eligible for LTC payments as described in 5720.1.

The penalty period is determined by considering the uncompensated value and the state-wide average cost of private pay nursing facility services in effect on the date the penalty begin. The average nursing facility cost will be redetermined annually by the agency. The penalty period depends on when the assets were transferred.

For transfers prior to February 8, 2006 - Divide the total uncompensated value by the average monthly NF rate, currently $4000. Drop any remainder from the resulting quotient. The whole number remaining is the number of penalty months.
For transfers on or after February 8, 2006 - Divide the total uncompensated value by the average daily NF rate, currently $220.50. Drop any remainder from the resulting quotient. The whole number remaining is the number of penalty days.

5724.5 Effective date - The date the penalty begins is determined by the date of transfer and whether the individual subject to penalty is an applicant or recipient. An applicant is an individual who is making an initial request for LTC coverage. Individuals currently receiving medical assistance under other categories, but not LTC, are considered applicants for purposes of establishing the penalty period.

For transfers prior to February 8, 2006 - For applicants, the penalty period begins the month in which the asset(s) was transferred. For penalties involving multiple transfers the period begins with the first month an asset included in the uncompensated value determination was transferred. For recipients, the penalty period begins no later than the second month following the month of transfer to allow for timely notice.
For transfers on and after February 8, 2006 - For applicants, the penalty period begins the later of
1. The first day Medicaid eligibility for LTC could have been granted except for the sole reason of application of the penalty period; or
2. The first day of the month property were transferred

For recipients, the penalty period begins no later than the second month following the month of transfer to allow for timely notice.

5724.6 Consecutive Penalty Periods - Where a penalty period for uncompensated transfer is discovered during an ongoing transfer penalty period , the new penalty begins the day after the expiration of the current penalty period.

Example: John is currently serving a penalty period of 01/15 - 09/18. On 04/10 a separate transfer is discovered, resulting in a penalty of 45 days. The new penalty period begins the day following the expiration of the current penalty, or 09/19.

5724.7 Implementation of Penalty Period - Because transfer of property only impacts LTC coverage, a determination for regular medical assistance must be completed. Eligibility during a transfer penalty is based on the independent living methodologies of 7530. LTC budgeting and methodologies begins in the month the penalty period ends if the individual is otherwise eligible.

5724.8 Apportionment of Penalty Between Spouses - Where spouses are both otherwise eligible for LTC medical assistance, any penalty period is equally apportioned between the spouses.

If both spouses are otherwise eligible for LTC medical at the time the penalty is established, the penalty period is split equally among them. Neither spouse is eligible for LTC medical assistance during this period. As the full penalty must be served, one spouse shall serve an additional month or day, depending on the date of the transfer.

If the penalty is initially attributed to one spouse and the other spouse becomes otherwise eligible for LTC medical assistance during the penalty period, the remaining penalty period is split equally among the couple. Again, as the full penalty must be served, one spouse shall serve an additional month or day, depending on the date of the transfer.