In order to keep individuals who cannot afford care but are not eligible for Health First Colorado (Medicaid) from simply giving away their resources to become eligible, Health First Colorado has implemented the Transfers Without Fair Consideration (TWOFC) rules.
The “Look Back Period”
In layman’s terms, if an individual gives away an asset, sells it for below market value or does not access an available resource, they may be made ineligible for Health First Colorado. When applying for Health First Colorado, individuals are subject to a five year “Look Back Period”, where Health First Colorado will assess what resources the applicant has given away without receiving fair and reasonable compensation. If Medicaid discovers that a resource was transferred without this ‘fair consideration’, a penalty may be imposed on the value of the asset that was transferred.
Example: Mr. Green gave his son $100,000 on March 6, 2016 as a gift. In 2010 he has a stroke and goes into a nursing home, cannot afford it and applies for Medicaid, on March 31, 2017. Because it is during the five year look back period, Health First Colorado assesses a penalty on the $100,000 gift. The penalty is calculated by taking the total amount of the transfer and dividing it by the average cost of nursing home care ($7,854 in 2017), which means his penalty is 13 months from the date of application. So for those 13 months, Mr. Green is not eligible for Health First Colorado, because if he had kept the $100,000 he would have been able to afford his own care for that time. So April 1, 2018, Mr. Green will be eligible to receive Health First Colorado coverage for his nursing home.
Transfers other than cash transactions
A transfer without fair consideration may not necessarily involved what is a straightforward transfer. Health First Colorado applicants are required to access and accept all income and resources to which they are entitled. A transfer without fair consideration can then include:
- Waiving a pension income or right to an inheritance
- Diverting income to a trust (except valid, qualifying income, disability or pooled trusts)
- Declining the spousal share of an estate
- Failing to claim an exempt house (because a spouse or dependent was living in it) as a resource when it is no longer exempt
- Refusing to accept or access a personal injury settlement
- Transferring assets to a irrevocable private annuity, not purchased from a private company
- Transferring assets to an irrevocable entity such as a limited partnership (when the access to those assets is then eliminated or restricted)
- Refusing to file for child support or alimony
- Failing to file for equitable distribution of marital property and income at divorce
- And other similar actions
Promissory notes, loans and mortgages originating with the applicant may also be considered a transfer without fair consideration if they have unactuarially sound repayment schedules, unequal payment amounts or the balance is canceled upon the applicant/lender’s death.
Personal care provided by family members cannot be later reimbursed without a written agreement executed prior to delivery of services, signed by both parties, notarized and providing compensation at fair value. For services rendered after March 1, 2007, the family member cannot be an heir to the applicant’s estate, the agreement must iterate the type, frequency and time of services, along with regular (at least monthly) payment schedules, and the care is not provided by a power of attorney, guardian or conservator. In addition, a record or log of services rendered must be kept and services cannot be duplicative. Services rendered in the past and not reimbursed at the time or compensation for future services are automatically considered transfers without fair consideration. This is to prevent family members from being paid for previous uncompensated services when the applicant is now in need of Medicaid.
Transfers of property to joint tenancy or deeded to a beneficiary are also considered transfers without fair consideration. A property deeded to avoid probate can also lose its’ exempt status as a resource.
Annuities are subject to a complex array of regulations depending on when they were purchased. Those purchased before July 1, 1995 are exempt from transfers without fair consideration if they are annuitized (have begun paying out) and regular returns are being received (though they still count as income). If it has not been annuitized is is considered a resource.
Annuities purchased after July 1, 1995 are subject to more regulations to not be considered a transfer. They must be purchased from a licensed life insurance company, annuitized, purchased on the life of the applicant or spouse and provide payments for a period not to exceed the projected life expectancy of the individual (based on age, not individual factors). Annuities purchased after between April 1, 1998 and February 7, 2006 must payout less than the base spousal protection allowance or it will be considered a transfer.
For those annuities purchased after February 7, 2006, the State of Colorado must be a remainder beneficiary in addition to the previous regulations to be exempt from unfair transfers.
If the annuity is an Individual Retirement Annuity or Account (described in sections 408(b) and 408(q) of the IRS Code respectively), purchased with the proceeds of one of those, established by an employer (408[c]), is a simple retirement account (408[p]), a simplified employee pension (408[k]) or a Roth IRA (408[a]), the annuity is not considered a transfer without fair consideration. It must also be irrevocable, nonassignable, actuarially sound and provides equal payments.
To find the Annuity Life Expectancy Tables, you must go to the Code of Colorado Regulations, and search for rule 3.210.3.
If you have any questions, please contact us at 303-333-3482.