Gift/Ineligible Transfer
An asset is given away to an entity (a person, corporation, or charity) and the giver receives nothing or something of less value in return.

Exchange/Eligible Transfer
An asset is traded for something of equal or greater value. (i.e. $100,000.00 in cash purchases a home worth $100,000.00 or more.) No gift has occurred.

This exchange can also work to create an income stream. Therefore, one could exchange $ 100,000.00 in cash for an income stream based on the person’s life expectancy.

It is however, important to understand that a gift cannot occur before an exchange. For example: A patient cannot gift the money to a child and the child uses the money to purchase a home. Although a valid exchange occurred, a gift preceded the exchange and therefore an ineligibility period has been created.

New Rules per Deficit Reduction Act of 2005

If an asset exchange plan is implemented using an annuity, then the state must be listed as the beneficiary of any remaining payments after the patient OR community spouse pass away.  This new rule greatly reduces the attractiveness of the annuity strategy.

It is also crucial to understand that because of the laws passed in 2006, a gift given within the last five years will create an ineligibility period beginning from the date of application forward.  Therefore, if you choose to give a gift as a Medicaid Planning Strategy after 2005, then you must be comfortable that the giver or the givers spouse will not enter a nursing home for 5 years or longer.

The good news is that the rules allow you to return a gift if it creates an ineligibility period.  In other words, you can give a gift and if you enter a nursing home sooner than 5 years, you have the option of the recipient returning the gift and thereby eliminating the ineligibility period.  Whether such a return is advisable depends on a number of factors.  Consult a knowledgeable Medicaid Planner.