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Understanding the Caretaker Child Exception

Many of our clients have heard of the “five-year lookback” but few understand what it actually means. In essence, since Medicaid is a payer of last resort, the government wants to ensure that people are not divesting themselves of assets with the purpose of impoverishing themselves to establish Medicaid eligibility for long-term care services. By law, the programs may impose a penalty on assets that have been transferred without fair market value compensation with sixty months of application. The penalty imposed will vary based on the value of the uncompensated transfer and the local penalty divisor. In Hampton Roads, the Department of Social Services will impose a penalty of one month per $6,422 in uncompensated transfers. There are, however, a number of exceptions to this general rule.

Most states, like Virginia, provide a “child caretaker exception” under Medicaid policy that permits a parent to transfer their primary residence to an adult child, either biological or adopted, who resided in the home with their parent for the two years prior to requiring Medicaid. In general, the child must have provided care to that parent which resulted in the parent remaining in the home for those two years, instead of the parent needing institutionalized care. The purpose of this rule is to incentivize a child for keeping their parent out of a nursing home for as long as possible. 

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To provide evidence of the exception, in Virginia, the applicant must provide documentation regarding residency and care. This includes a detailed statement from a physician, the caretaker child, and a third-party. These statements must meet very specific requirements set forth under the Medicaid Manual.

Proper legal advice is necessary prior to a transfer. The transfer itself results in a number of tax issues that should be addressed and understood by both the parent and the child. Additionally, the parent must have capacity or, in the case of an agent acting on behalf of the parent, the authority to make the transfer.


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Hook Law Center: Neo, why do cats sleep so much?

Neo: Healthy adult cats sleep, on average, between 12-20 hours per day. While this may sound like a lot, they actually need the additional sleep. Since cats are hunters by nature, which requires energy, rest is an instinctual way to catch up on energy despite the fact that your house cat may not necessarily be hunting live animals for food.  

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