A Guide to Medicaid Asset Transfers and Trusts in Pennsylvania

It may sound odd but a common concern for older Pennsylvanians isn’t about dying, it’s about living too long with chronic illness. How do they afford care? We all know the statistics. The cost of long-term care in Pennsylvania - whether in a skilled nursing facility, assisted living, or through extensive at-home care - is staggering. In many parts of our state, nursing home costs now exceed $12,000 per month.

Many families assume Medicare will cover these costs. It does not. Medicare is designed for short-term rehabilitation, not long-term custodial care. That leaves two options: paying out-of-pocket until life savings are depleted, or qualifying for Medicaid (Medical Assistance in PA).

To qualify for Medicaid, you must meet strict financial eligibility requirements. Essentially, you are only allowed a very small amount of "countable" assets (often as low as $2,400 or $8,000 depending on income levels in PA for a single individual).

This leads to the crucial question:

"How do I qualify for the care I need without impoverishing my spouse or leaving nothing as a legacy for my family?"

The answer lies in strategic legal planning involving Medicaid asset transfers and specialized trusts.

What Are Medicaid Asset Transfers?

At its simplest, a Medicaid asset transfer is the process of moving assets out of your name for less than fair market value so that they are no longer "countable" toward your Medicaid eligibility limit.  But it’s not that simple.  If you just give away $100,000 (or your home) to your children today and apply for Medicaid tomorrow, Pennsylvania’s Department of Human Services (DHS) will deny your application.

Why? Because of the Five-Year Look-Back Period.

When you apply for Medicaid for long-term care, the state "looks back" at all your financial transactions over the previous 60 months (five years). Any assets transferred for less than fair market value during that time are flagged. The state then calculates a "penalty period" which is an amount of time during which you are ineligible for Medicaid coverage, based on the amount you gave away divided by the average monthly cost of a nursing home in Pennsylvania.

The goal of asset protection planning is to make these transfers legally, start the five-year clock running as soon as possible, and protect the assets while waiting out that period.

Common Types of Medicaid Asset Transfers

Not all transfers are created equal. Some are simple, some are complex, and some are exempt from penalty altogether.

1. Outright Gifting

This is the simplest form: giving cash, stocks, or real estate directly to your adult children or other beneficiaries.

• The Risk: Once you give the money away, it’s gone. If your child gets divorced, gets sued, or declares bankruptcy, your former savings could be lost to their creditors. You also lose all control over those funds.

2. Personal Care Agreements (Caregiver Contracts)

Instead of gifting money, you can "transfer" assets to a family member (like an adult child) in exchange for them providing care for you.

• The Requirement: To pass Medicaid scrutiny in Pennsylvania, this must be a formal, written legal contract executed before care begins. The compensation must be reasonable (fair market value for the geographic area in PA), and the caregiver must actually provide the services logged. If done correctly, this is a transfer for value, not a gift, and doesn't trigger a penalty.

3. Spousal Transfers (The Community Spouse)

If one spouse needs a nursing home (the "institutionalized spouse") and the other is healthy and living at home (the "community spouse"), the rules are very different.

• The Benefit: There are significant protections allowing asset transfers between spouses to ensure the community spouse isn't impoverished. The community spouse is allowed to keep a much higher amount of assets (up to a federally set maximum, which changes annually). Strategic transfers between spouses are a cornerstone of crisis planning.

4. Transfers to Disabled Children

Transfers of assets to a child who is considered disabled under Social Security standards are generally exempt from the five-year look-back penalty, regardless of the child's age.

The Power Duo: How Medicaid Trusts and Transfers Work Together

While outright gifting is simple, it is rarely the best advice because of the risks mentioned above (loss of control, exposure to the recipient's creditors).  This is where the Medicaid Asset Protection Trust (MAPT) comes in.

An MAPT is a specific type of irrevocable trust designed to hold your assets so they don't count against you for Medicaid eligibility, while still offering you protections that outright gifting does not.

Important Note: A standard "Revocable Living Trust," which many people use to avoid probate, does not protect assets from Medicaid. Because you can revoke it and take the money back, Medicaid considers those assets yours.

Here is how a MAPT and asset transfers work together in a proactive plan:

1. The "Transfer" into the Trust

You work with one of Fiffik Law Group’s experienced elder law attorneys to create an irrevocable trust. You then transfer your home, savings accounts, or investments into the trust. You name someone else (often an adult child) as the trustee.

• The implications: This funding of the trust is considered a "transfer" and starts the five-year look-back clock ticking.

2. Retaining Certain Rights (The "Cake and Eat It Too" Aspect)

Unlike an outright gift to your kids, the trust deed can be drafted to give you certain rights.

• If you transfer your house to the trust, you can reserve the right to live there rent-free for the rest of your life.

• You can reserve the right to receive any income the trust assets generate (like stock dividends or interest), even though you cannot access the principal.

3. Protection During the Waiting Period

While you wait for five years to pass, the assets in the trust are protected. Because your children don't own the assets personally—the trust does—the assets are generally safe from your children's divorces, lawsuits, or bankruptcies.

4. The Five-Year Finish Line

Once five years have passed since you fully funded the trust, those assets are no longer countable by Pennsylvania DHS. You can apply for Medicaid, and the nest egg inside the trust remains intact for your quality of life or your heirs.

The Danger of DIY

Pennsylvania Medicaid law is a maze of complex federal statutes and specific state regulations. The rules change frequently. A mistake in timing a transfer, improper wording in a caregiver agreement, or using the wrong type of trust can result in a devastating denial of benefits when you need them most.

If you are concerned about the costs of future care, the best time to plan is now. The sooner you start the five-year clock, the more secure your future will be. Please contact one of our Pennsylvania offices in Pittsburgh or Philadelphia to schedule a consultation to discuss your specific situation.