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Effective: July 1, 2010 |
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19.40.25ar4 - Determining the Amount of an Uncompensated Transfer (Archive) |
Archived: June 1, 2011 |
This section describes the steps to determine if a client has received adequate compensation for transfers of income or assets. Transfers without adequate compensation may be subject to transfer penalties. The amount of the uncompensated transfer is used to determine the length of the transfer penalty.
Evaluate all transfers made during the appropriate lookback period or while the client is receiving MA payment for long-term care services or GAMC to determine the amount of the uncompensated transfer.
To determine the amount of the uncompensated transfer of:
l An annuity, see Annuity Transfers.
l A life estate, see Life Estates - Transfers or Purchases as Transfers.
l A trust, see Client-Funded Trusts.
l A purchase of a promissory note, loan or mortgage, see Purchases as Transfers.
To determine the uncompensated amount of all other transfers follow these steps:
1. Determine the amount of the following on the transfer date:
n The fair market value (FMV) of an asset.
n The amount of income transferred. Include the full value of all future income the person making the transfer would have received if the transfer results from an irrevocable waiver of income.
2. Subtract all encumbrances (money owed) on the asset or income at the time of transfer.
3. Subtract any compensation received by the client.
Note: See Purchases as Transfers for information on how to determine the amount of compensation received in relationship to services provided to the client.
4. The result is the amount of the uncompensated transfer.
Example:
George entered an LTCF on June 16, 2009, and applied for MA payment of LTC services on October 29, 2009. He reported selling his home to his niece in May of 2006 for $140,000. The home’s fair market value in 2006 was $225,000.
Action:
Subtract the amount of compensation George received for his home from the fair market value of the home at the time it was sold. $225,000 - $140,000 = $85,000. The amount of George’s uncompensated transfer is $85,000.
Example:
Marietta enters an LTCF and applies for MA for payment of LTC services that month. She reports giving her neighbor, Ron, $5,000 on the day before she entered the LTCF to compensate him for helping her around the house for the past few years. The services Ron provided included changing the oil on Marietta’s car several times, routine lawn care, leaf and snow removal, and repainting the back porch and trim last summer.
Action:
No notarized agreement is required because Marietta and Ron are not related. Contact area businesses to determine approximate charges for the services Ron provided. A painter would have charged $1,500 for the back porch and trim. A local mechanic would have charged $300 total for the oil changes. The lawn care, leaf removal, and snow removal would have cost $1,000 over the period of time Ron performed these services. Marietta received compensation in the form of services for $2,800 of the transferred amount. The remaining $2,200 is uncompensated.