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How Medicaid Gifting & Penalty Periods Work

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal law prohibits gifting of assets for a five-year period, known as the look-back period, prior to applying for Medicaid. When you apply for Medicaid long-term care benefits, your Oklahoma Human Services case worker needs to ensure you haven’t given away or transferred assets to qualify. That’s where the 5-year look-back rule and penalty period come into play.

 

 

🔍 1. The 5-Year Look-Back Rule

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When you apply for Medicaid, the state will examine all your financial transactions for the past 60 months (5 years).

 

  • They’re looking for “uncompensated transfers”—gifts or asset transfers where you didn’t receive fair market value in return.

  • This includes giving money to family, deeding a house to children, or selling a car for less than its full value.

 

⚠️ Important:

 

Even small gifts—like $1,000 for a grandchild’s wedding—are generally prohibited.

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⏳ 2. What Is a Penalty Period?

 

If Medicaid finds that you gave away assets during the 5-year look-back, you’ll face a penalty period—a span of time during which you’re ineligible for Medicaid, even if you now qualify financially. That means that during the penalty period, you must find another way to pay for care while the penalty period runs.

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🧮 3. How the Penalty Period Is Calculated

 

The penalty is based on the total value of the gifts divided by your state’s monthly penalty divisor (which represents the average cost of nursing home care in your state).

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💡 Example (Oklahoma 2025):

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  • Gifted: $80,000

  • Oklahoma penalty divisor: ~$7,400/month

  • $80,000 ÷ $7,400 = 10.8 month penalty

 

You’ll be responsible for paying your own care during that time. It’s also important to know that the penalty period cannot begin until you meet all other eligibility requirements, medical and financial. 

 

 

❌ 4. Common Gifting Myths

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  • Myth: “I can give $18,000 per year per person—it’s tax-free!”
    Truth: That’s an IRS gift tax rule, not a Medicaid exemption. Medicaid has no gifting allowance—all gifts are scrutinized. Medicaid does not follow the same IRS tax rules!

  • Myth: “I gave it away more than 5 years ago, so I’m safe.”
    Truth: That’s generally correct. Only transfers within the look-back period trigger penalties. However, if it can be shown that someone is holding property for your benefit, the state can go beyond the 5-year look-back period in reviewing your eligibility.

 

 

✅ 5. Can Gifting Ever Be Done Safely?

 

Yes—with careful legal planning. Certain transfers are exempt, such as:

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  • Transfers to a spouse

  • Transfers to a disabled child or certain types of special needs trusts

  • Transfers into a Medicaid Asset Protection Trust (if done outside the 5-year look-back)

 

There are plenty of traps when it comes to transfers and gifting, and this information offers only a very high level overview. 

 

 

🛡️ How an Attorney Can Help

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Medicaid gifting rules are strict, and mistakes can cost families tens or hundreds of thousands of dollars. An experienced Medicaid attorney can:

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  • Review past gifts

  • Shorten or avoid penalty periods

  • Use legal tools to protect assets

  • Time applications strategically 

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Schedule your free consultation below.

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